The firm’s annual analysis of 100 companies across the FTSE found nearly one-third of listed companies are already disclosing that their directors consider broader non-financial matters, such as employee interests and maintaining a reputation for high standards of business conduct, while still promoting corporate success for shareholders.

The rules, effective for periods beginning on or after 1 January 2019, will require reporting by all large UK companies as per section 172 of the Companies Act 2006 (CA 2006) while the revised Corporate Governance Code will also introduce changes.

The report also noted that companies are preparing for the effective date for IFRS 16 Leases from 1 January 2019 which requires companies to bring operating leases on balance sheet, although none of the companies surveyed had adopted the new leasing standard, some appeared well prepared.

Veronica Poole, head of corporate reporting at Deloitte, said: ‘Eight annual reports already quantified the anticipated impact of the new standard, with a further 36 providing some indication by cross-referencing existing operating lease commitments. The amount of information required for IFRS 16 will only increase for the next reporting season so it is encouraging to see some are already well advanced.’

Only 12 companies explicitly stated that they did not expect a material impact from IFRS 16, although nearly a third of respondents mentioned there could be an impact from the change to lease accounting.

In cases where companies gave specific information on the impact of IFRS 16, for example Rightmove plc, the company confirmed it would adopt IFRS 16 for the financial year ending 31 December 2018.

The 2017 Rightmove annual report issued 29 March 2018, stated: ‘The Group has completed a detailed assessment to quantify the impact on its reported assets and liabilities of adoption of IFRS 16… will transition to IFRS 16 using the modified retrospective application approach with no restatement of prior year comparatives.

‘On 1 January 2018 the Group expects to recognise new right-of-use assets of £10,730,000 and lease liabilities of £10,824,000 for its operating leases in respect of office premises and company cars.

‘The nature of expenses related to those leases will also change as the straight-line operating lease expense will be replaced with a depreciation charge for right-of-use assets and interest expense on lease liabilities, in the first year of adoption these are expected to be approximately £1,775,000 and £301,000 respectively.’

Non-financial reporting

Almost all companies (97%) shared information on their impact on the community and environment. Other notable s172 matters companies indicated they had considered included acting fairly between different shareholders (66%), and a desire to maintain a good business conduct reputation (87%).

‘While UK law already requires directors to consider broader non-financial matters, it is encouraging to see more companies acknowledging this, in advance of the requirement to report on it,' Poole said.

‘There has been year-on-year progress and by far the biggest leap was in companies sharing more about how they have fostered business relationships with suppliers - 71% today, up from 38% last year.

‘Considerations of employee interests was also up from 88% last year to 95% today. Both indicate a renewed focus of directors’ duties and acknowledgement of companies’ broader role within society.’

This year’s reports were also the first since the non-financial reporting (NFR) directive became effective, requiring companies to disclose policies on the environment, employees, social matters, human rights, anti-bribery and anti-corruption.

Poole said: ‘Of the 100 companies surveyed, 70 fell within the scope of NFR changes. However, there remains some ambiguity on companies’ reporting in this space and whether they are providing all the required information.’

Deloitte’s analysis found 61 companies clearly mentioned anti-bribery and anti-corruption but it was hard to detect whether this was in response to NFR or earlier legislation touching on similar areas. Many did not disclose a policy as such around NFR reporting, with the research showing only 23 companies had clearly named or described a policy in relation to social matters.

Poole said: ‘Eight annual reports already quantified the anticipated impact of the new standard, with a further 36 providing some indication by cross-referencing existing operating lease commitments. The amount of information required for IFRS 16 will only increase for the next reporting season so it is encouraging to see some are already well advanced.’

Deloitte’s research sample included 19 FTSE 100 companies, 38 FTSE 250 companies, and 43 companies outside the FTSE 350 and reports analysed for the financial years ended between 30 September 2017 and 31 March 2018.

Annual report insights 2018 – Surveying FTSE reporting is here

Report by Pat Sweet