Last week the Department for Business, Innovation & Skills (BIS) released a set of draft regulations designed to reduce the complexity involved in narrative reporting for large British companies and increase transparency.
Changes will take effect from October next year, meaning quoted companies with reporting years ending on or after 1 November 2013 will need to change the form and content of their reports.
The new regulations aim to remove outdated and duplicated requirements, making the reports easier to navigate and making it easier for shareholders to hold companies to account.
The existing business review, which currently forms part of the directors' report, will be abolished. It will be replaced by a concise, stand-alone strategic report enabling shareholders to understand easily a company's strategy, risks and performance.
This report will cover similar ground to the current business review, but must also cover:
- the company's strategy
- its business model
- alongside social and community issues, any human rights issues to the extent necessary for an understanding of the development, performance or position of the company's business
- the number of women on the board, in senior executive positions and in the organisation as a whole
Against these increased requirements, the draft regulations remove several reporting requirements for all or some companies. Small companies are exempt from the requirement to produce a strategic report, and the previous requirement for quoted companies to include information about essential contractual arrangements will not be included.
The following information is no longer required to be disclosed in the directors' report (although some of it may be covered elsewhere in the report and accounts):
- persons with whom the company has contractual (or other) arrangements essential to the business
- asset values
- essential contractual arrangements
- acquisition of own shares by private companies
- policy and practice of payment to creditors
- principal activities of the company
- charitable donations over £2,000
It is however worth bearing in mind that many quoted companies will still need to disclose similar information under other regulatory requirements - although it is hoped that there should be a reduction in duplication.
It is intended that the strategic report will provide a simple summary of key data, including business strategies and models, performance, financial data, principal risks and significant changes to governance.
The draft regulations should complement the changes to the reporting requirements on directors' remuneration in increasing corporate transparency for shareholders.
BIS suggest that these measures should make it easier for shareholders to hold companies to account, enable investors to easily identify gender imbalances and help companies to address talent blockages.
To find out how these and other changes will affect your company, contact one of our legal advisers. Further guidance will be issued next year by the Financial Reporting Council to help companies comply with the new regulations.