Transcription of Financial Reporting Council
1 Financial Reporting CouncilJuly 2018 Guidance on the Strategic ReportAccounting and ReportingGuidanceFurther copies, ??.00 (post-free) can be obtained from:FRC PublicationsLexis House30 Farringdon StreetLondonEC4A 4 HHTel: 0330 161 1234 Email: order online at: 7/20/2018 1:27 PM Page 1 The FRC's mission is to promote transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate Reporting ; and operates independent enforcement arrangements for accountants and actuaries.
2 As the Competent Authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit FRC does not accept any liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly, whether in contract, tort or otherwise from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this document or arising from any omission from it. The Financial Reporting Council Limited 2018 The Financial Reporting Council Limited is a company limited by guarantee. Registered in England number 2486368. Registered Office: 8th Floor, 125 London Wall, London, EC2Y 7/20/2018 1:27 PM Page 2 July 2018 Guidance on the Strategic ReportFinancial Reporting CouncilContentsPageGuidance on the Strategic ReportSummary31 Objectives and how to use this guidance52 Scope73 The annual report104 The strategic report: purpose165 The strategic report: materiality186 The strategic report: communication principles217 The strategic report: content elements248 The strategic report.
3 Content elements for section 172 reporting579 The strategic report with supplementary material63 AppendicesI Glossary65II The Companies Act 2006 strategic report disclosure requirements68 III The Companies Act 2006 directors report disclosure requirements79 Basis for conclusions88 Financial Reporting Council 12 Guidance on the Strategic Report (July 2018)Summary(i) The aim of the Financial Reporting Council (FRC) is to promote transparency and integrityin business. The FRC believes that encouraging entities1to prepare a high qualitystrategic report which provides shareholders with a holistic and meaningful picture of anentity s business model, strategy, development, performance, position and futureprospects is a key part of achieving this aim.
4 (ii) The FRC believes the strategic report should be clear and concise and result in fair,balanced and understandable Reporting . The guidance is therefore intended to encouragepreparers to consider how the strategic report fits within the annual report as a whole, witha view to improving the overall quality of corporate Reporting .(iii) This guidance incorporates the following requirements relating to the strategic report:(a) The Companies Act 2006 (Strategic Report and Directors Report) Regulations 2013;(b) The Companies, Partnerships and Groups (Accounts and Non- Financial Reporting )Regulations 2016; and(c) The Companies (Miscellaneous Reporting ) Regulations of the guidance(iv) The FRC has developed guidance that aims to be:(a) principles-based;(b) mindful of recent developments in narrative Reporting best practice.
5 And(c) aligned with the requirements in theUK Corporate Governance (v) TheGuidance on the Strategic Reportserves as a best practice statement and, as such,has persuasive rather than mandatory force. One of its objectives is to set out high-levelprinciples that enable entities to tell their story .(vi) The guidance is for directors and is intended to serve as best practice for all entitiespreparing strategic annual report(vii) The guidance encourages entities to provide information in annual reports that is relevantto shareholders. With that in mind, the guidance is framed in the context of the annualreport as a whole.
6 In practice, an annual report comprises a number of components. Theinformation contained in each of these components has different objectives that shouldguide preparers to where disclosures could be located. The aim is to promotecohesiveness and enable related information to be linked together.(viii) In meeting the needs of shareholders, the information in the annual report may also be ofinterest to other stakeholders. The annual report should not, however, be seen as areplacement for other forms of Reporting addressed to other stakeholders.(ix) Placement is a key theme in the guidance with a view to providing entities with the buildingblocks to be innovative in the location of information while working within the regulatoryframework.
7 The aims are to ensure that important information is prominent and improve1 This guidance uses the broader term entity unless the term company is more appropriate in a specific Reporting Council 3the accessibility of information. The guidance recommends that information that is notrelevant for shareholders should be provided outside the annual report where this ispermitted by law or strategic report(x) The purpose of the strategic report is to provide information for shareholders and helpthem to assess how the directors have performed their duty, under section 172, topromote the success of the company2and, in doing so, had regard to the matters set outin that section.
8 This includes considering the interests of other stakeholders which willhave an impact on the long-term success of the entity.(xi) The strategic report should reflect the board s view of the company and provide context forthe related Financial statements.(xii) The guidance recommends that information that is material to shareholders should beincluded in the strategic report. Immaterial information should be excluded as it canobscure the key messages and impair understandability.(xiii) The communication principles suggest that the strategic report should have the followingcharacteristics be fair, balanced and understandable; be concise; have forward-lookingorientation; include entity-specific information; and link related information in differentparts of the annual report.
9 There are also principles which recommend that the structure,presentation and content of the strategic report be reviewed to ensure that informationremains relevant to the current period. The communication principles are intended toemphasise that the strategic report is a medium of communication between a company sboard and its shareholders.(xiv) The content elements for the strategic report set out in the guidance are derived from theCompanies Act 2006, and include a description of the entity s strategy, objectives andbusiness model. In addition, the strategic report must include an explanation of the maintrends and factors affecting the entity; a description of its principal risks and uncertainties;and an analysis of the development and performance of the business, including keyperformance indicators.
10 Entities must disclose information about the environment,employees, social, community, human rights, and anti-corruption and anti-briberymatters when material. There is also a requirement to include disclosures on 172 of the Companies Act Guidance on the Strategic Report (July 2018)Section 1 Objectives and how to use this The objectives of the Guidance on the Strategic Report are to:(a) ensure that relevant information that meets the needs of shareholders is presentedin thestrategic report;(b) encourage entities to experiment and be innovative in the drafting of theirannualreports, presenting narrative information in a way that enables them to best telltheir story while remaining within the regulatory framework.
