New non-financial reporting regulations – are you prepared?

03 August 2017

As the 2016 reporting season comes to an end and companies start to plan for next year, more and more attention is being paid to the new non-financial reporting regulations. If they’re still on your to-do list, now’s the time to take a closer look.

In my previous blog I talked about how the roundtable we held confirmed the new non-financial reporting regulations will be more significant than many had thought. Our latest publication explores the debate around all of this as well as taking a look at what’s new (or nearly new, if I can put it that way) in the regulations - and how they compare with the requirements that companies are already used to in their strategic reports.

Here’s a quick snapshot of what we found in the survey of current reporting practice in terms of non-financial information. More details are in the publication.

 What we’ve seen

While a number of the areas in the new regulations are addressed to some extent by most companies (see below), it’s rare to find much on human rights and anti-corruption and anti-bribery in annual reports. Indeed, there has never before been any kind of disclosure requirement on anti-corruption and anti-bribery measures for UK companies.

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Even in the areas that are addressed, however, there is going to be more work for most companies to do if they are to comply and provide disclosures with real information value under the new regulations. In our publication we particularly highlight two aspects that look challenging based on our survey: Reporting on policies and reporting on impacts and outcomes.

We’re also already hearing quite a bit of discussion around the need to disclose “any due diligence processes implemented by the company in pursuance of [its] policies”. ‘Due diligence’ is not a term UK management teams and boards are accustomed to using in this context and only 12% of companies in our survey used the term ‘due diligence’ in their last annual report. So this requirement is causing questions to be asked about whether enough assurance is being obtained on the operation of the relevant policies – a reminder that this is not all about reporting. The underlying processes and procedures must also be considered.

Finally, there’s the discussion around what actually needs to be disclosed – because none of this information is required unless it’s “necessary for an understanding of the company’s development, performance and position”. How then should the judgements about what is necessary be made? For us the yardstick should be the impact on whether the company will be able to deliver on its strategy – if it doesn’t affect this, it doesn’t have to be there. There was general agreement on this at our roundtable but it’s going to be important for companies to be able to back up the judgements that are made in this regard.

 Next steps

The year is passing quickly and we’re eagerly awaiting the updated Guidance on the strategic report from the FRC, which will take into account the new non-financial reporting requirements. In the meantime, we will continue to take an active role in exploring approaches and identifying practical solutions. With that in mind here are a number of actions we think companies should be taking now to prepare, if they haven’t already done so.

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Sarah Allen | Corporate Reporting Senior Manager

 

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