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High-quality disclosures vital for investors ahead of the 2021 season

15 July 2021

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High-quality disclosures vital for investors ahead of the 2021 season

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The Financial Reporting Council (FRC) have published a review examining interim reporting ahead of the 2021 season.

The review looks at the interim reports of 20 entities listed on the main market of the London Stock Exchange, highlighting examples of good practice and pinpointing areas for future improvement.

With a sample of firms directly influenced by companies in the FRC’s priority sectors, the key areas of focus were disclosures, impairments, management commentary and the use of Alternative Performance Measures (APMs).

On the whole, the FRC noted that they were pleased with the high standards of the interim reports. They found that most companies took into consideration their recommendations regarding COVID-19 to improve their disclosures.

The FRC discovered that those firms with the most effective disclosures:

  • Explained the different scenarios that had been considered when making assessments
  • Clearly stated the assumptions within the forecasts and how those assumptions affected the conclusion
  • Differentiated the impact that the various stages of the pandemic had on the financial statements
  • Gave detailed explanations of their use of APMs and reconciliations to Generally Accepted Accounting Practice (GAAP) measures

Whilst the FRC were happy with their findings, there remains opportunities for further improvement. The watchdog released their predictions for key disclosure expectations for 2021, mapping out their guidance as to what a good interim report should do:

  • Ensure that management commentaries detail important events that have occurred during the first six months of the financial year, and their impact on the financial statements
  • Provide a comprehensive update of the principal risks and uncertainties for the remaining six months of the financial year
  • Detail changes to key judgements and estimates with reasons that enable users to understand management’s views about the future, and their impact on the interim financial statements

The FRC have encouraged firms to take into consideration the findings of the review when preparing their upcoming interim reports. David Rule, Executive Director, Insurance Supervision at the Bank of England’s Prudential Regulation Authority, has said:

“High-quality reporting is vital for investors and other users of accounts to make better-informed decisions about a company’s health and prospects. While it is pleasing many companies followed the FRC’s Covid-19 guidance, there is still room for further improvement particularly around providing better and clearer explanations of the impact of significant events on financial statements.”

Find out more about how your company can improve the quality of your financial disclosures for the upcoming season by downloading our white paper now.

Ideagen's content executive Chloe Weaver
Written by

Chloe Weaver

As Ideagen’s Content Marketing Executive, Chloe produces engaging content to inform and educate customers on the intricate world of quality, audit, risk and compliance. With a journalistic background in renewable and nuclear energy, Chloe is passionate about creating content to educate, enlighten and inspire customers.

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