The government has published draft regulations on the new structure for narrative reporting which will require UK companies to produce a strategic report. Quoted companies will be required to report, to the extent necessary for an understanding of the business, on their strategy, their business model, and any human rights issue. They will also be asked to report on the number of men and women on their boards, in executive committees and in the organisation as a whole.
Several reporting requirements from all or some companies will be removed. This includes removing from the business review, the requirement for companies to include information about essential contractual arrangements. Also, several reporting requirements which have either been superseded or required elsewhere will be removed from the director's report such as information about asset values and charitable donations.
A consultation is also underway with the Financial Reporting Council (FRC) on requiring the annual report to set out how long the current auditor has been in place and when a tender was last conducted. The FRC aims to consult on the style of draft guidance on this matter early in 2013.
The regulations will come into force in October 2013. This means that companies with reporting years ending after October next year will be expected to prepare their annual report in line with the new regulations.
Veronica Poole, national head of accounting and corporate reporting at Deloitte, says: 'With annual reports getting longer, it is sometimes difficult to see the wood for the trees. If adopted, the proposals to introduce a strategic report will encourage preparers to take a step back and focus on what is really important. This will play a vital role in enhancing transparency, investor communication and overall confidence in a company.
'While this should lead to clearer reporting, this is unlikely to bring about significant cost savings, since the draft proposals are merely rearranging the deckchairs. Support should be given to keeping the level of prescriptive requirements low. This will allow companies to maintain flexibility to tell their story in their own way, and move away from the safety blanket of boilerplates.'
Comments on the draft regulations can be submitted until 15 November 2012.
Later this year the government will also publish its response to John Kay's review of equity markets which called for reform of markets to ensure they fulfill their core purposes - supporting corporate performance and providing returns to investors.
