The reports detail findings from the FRC’s 2016/17 thematic reviews of 60 companies and are intended to be used as a resource for when preparing the next set of report and accounts.   

As regards judgements and estimates, the FRC reports that many of the companies it reviewed had made a better effort to distinguish judgements from estimates and were more focused on genuinely critical judgements where management decisions had had a significant impact on results.

It warns it will continue to challenge and expect change by those who do not identify the assets and liabilities at significant risk of material change in the next 12 months; quantify the specific amounts; and provide sensitivity analysis of the possible range of outcomes.

Against a background of low interest rates and the economics of defined benefit pension arrangements, the FRC said that many companies have responded by more information about the risks and uncertainties arising from their pension schemes, along with better explanation of why there was a marked increase in companies’ pension deficits and the actions to address the issue.

Going forward, the regulator expects all companies to disclose the information needed to support an understanding of how pension-related risk may affect the amount, timing or uncertainty of future cash flows; or clearly explain the basis on which different plan assets have been valued.

As regards the use of APMs, the FRC review found that all companies provided definitions of their APMs, with fair and accurate descriptions and reconciled some, if not all, their APMs to IFRS numbers. Most explained why their particular APMs were useful without resorting to cursory or boilerplate text, and gave equal prominence to APMs and IFRS numbers.

The FRC says it will continue to challenge and expect change from companies who display APMs with greater prominence than IFRS measures; or who default to identifying matters as ‘non-recurring’ or similar in connection with items such as restructuring or impairment charges.

Paul George, FRC’s executive director for corporate governance and reporting, said: ‘The great majority of companies approached clearly reviewed and revised the relevant disclosures prior to releasing their next set of report and accounts, which provided better quality information to the market in a timely manner.

‘Many sharpened, and some shortened, the relevant information with a view to providing more granular detail about the issues that really matter to those reading their reports and accounts and wanting a better understanding of the key issues and of how management is dealing with them. 

‘We expect others to similarly review their own reports and accounts and look to the characteristics of the better disclosures we identified to inform the continuing development of their reporting.’

FRC thematic review on judgements and estimates is here.

FRC thematic review on pension disclosures is here.

FRC thematic review on alternative performance measures is here.

Report by Pat Sweet