FRC's Key Developments And Recommendations For 2019/20 Annual Reports.pdf

The Financial Reporting Council (FRC) outlines key matters and recommendations for the 2019/20 financial reporting season, emphasizing recent changes in reporting requirements.

Strategic Report:
- Offers Boards an opportunity to provide a holistic narrative explaining financial statements.
- Encourages quality communication on environmental, social, governance (ESG), and other non-financial issues.

Non-Financial Information Statement:
- Statutory requirement met with varying degrees of success in content and presentation.
- Should include clear descriptions of policies, due diligence processes, and outcomes related to ESG, employees, human rights, and environmental impact.

Section 172 Report:
- New reporting requirement for Boards to describe how they promote business success considering long-term consequences, employee interests, environmental impact, business conduct, and fairness.
- The FRC encourages disclosure of relevant issues, engagement methods, and the effect on decisions and strategies.

Environmental Disclosures and Climate Risk Reporting:
- In line with the UK Corporate Governance Code, companies should report on climate change's effects on their business model, risks, uncertainties, and viability.
- This includes considering asset valuation, impairment testing assumptions, and the resilience of the business model.
- The FRC is actively involved in implementing the Task Force on Climate-Related Financial Disclosures (TCFD) expectations by 2022.

2019 Year-End Reporting Environment:
- Increased investor scrutiny during times of uncertainty, demanding greater transparency.
- Specific challenges include amendments to IFRS 9 and IAS 39 regarding interest rate benchmark reforms, requiring careful judgment on hedge accounting.

Findings from Monitoring Work:
- Clear distinction between critical judgements and estimates, but insufficient disclosures for some significant reporting impacts.
- Emphasis on disclosing the sensitivity of estimation uncertainties to changing assumptions.
- Importance of cash availability, generation, and uses in investor decision-making, beyond the cash flow statement.