The Institute of Chartered Secretaries and Administrators (ICSA) has produced a consultation on a simple contents list for company annual reports. Although aimed primarily at listed companies, the notes may be of wider use.
Preparing the annual report is a time consuming and painstaking task for most companies. For example, for financial years ending on or after 30 September 2013 all companies other than those entitled to the small companies exemption must prepare a stand-alone strategic report in addition to their directors' report (new sections 414A to D of the Companies Act 2006).
Sections 414A to D were introduced by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 which came into force on 1 October 2013. Those Regulations 2013 repealed section 417 and the requirement to produce a business review as part of a company's directors' report.
The strategic report has a statutory purpose, which is to explain to shareholders and other investors how the company has performed over the past year and how it creates long-tem value. This is broadly known as the section 172 duty (the duty to promote the success of the company).
The strategic report must contain a fair review of the company's business, and a description of the principal risks and uncertainties facing the company. The review must be a balanced and comprehensive analysis of both the development and performance of the company's business during the financial year, and the position of the company's business at the end of that year, consistent with the size and complexity of the business.
The board has to approve the strategic report and it must be signed on behalf of the board by a director or the company secretary. If a strategic report is approved that does not comply with the CA 2006 requirements, every director of the company who knew that it did not comply - or was reckless as to whether it complied and failed to take reasonable steps to secure compliance with those requirements or prevent the report from being approved - commits an offence.
With all these - and many other - requirements upon the board and criminal penalties for getting it wrong, companies might find it helpful to have some guidance on how to set out their annual report.
Fortunately, at the request of BIS, ICSA has produced a consultation on a simple contents list for company annual reports. This was prepared with input from experienced company secretaries from the FTSE 100 and FTSE 250. It hopes to assist those preparing reports and although aimed primarily at listed companies (which are subject to even greater duties of transparency than other public companies) the notes may be of wider use. Each company will know best how to communicate its story to its investors and the guidance, which excludes a list of contents for the financial statements, is not intended to be prescriptive. It may however be a useful starting point.
To read the consultation which is open until 30 May 2014, see https://www.icsa.org.uk/assets/files/annual-report-consultation-april-2014.pdf