BIS is proposing that companies produce a stand-alone strategic report to accompany what will remain of the existing directors’ report. While ACCA says that it supports the broad direction being proposed by BIS, it is anxious that the strategic focus of the new report remains strong, and clear distance is created between it and what will become a more compliance-orientated directors’ report.
ACCA’s Global Forum, which is made up of 14 expert members, sees these reforms as part of a shifting landscape of narrative reporting, and believes that the plans for the restructuring of the directors’ report should take into account the work currently being undertaken by bodies such as the Financial Reporting Council (FRC) and the IIRC in this area.
John Davies, head of technical at ACCA, says: 'BIS is proposing that quoted companies should report on a number of new issues, including their strategy, their business model and their policies and practices on human rights issues. There are also proposals for information to be disclosed on the number of men and women on companies’ boards.
'The proposals to require new disclosures relating to the company’s strategy and business model are welcome. This initiative has the potential to add significantly to users’ understanding of the direction in which the board is taking the company, and will allow those users to assess how successfully the board is accomplishing its mission.'
John Davies continues: 'The future of narrative reporting is, however, likely to entail a fully joined-up approach in which the various factors that are material to a thorough explanation of the company’s strategy and performance are woven together so that a coherent picture is given. The proposals from BIS do not provide such a framework, so it is important that sufficient scope is allowed in the statutory format for narrative reporting practice to develop naturally. Given that the EU is shortly to publish its own proposals for statutory narrative reporting, the BIS proposals will also need to be consistent with future EU requirements in this area.'
ACCA supports the introduction of new disclosure requirements on gender equality in the boardroom and within individual companies, but does not believe that it would be appropriate for them to form an obligatory part of the new strategic report. It is important that the new report remains focused on an explanation of strategy and performance against strategy, and information that is not material to this explanation should not be seen as a necessary part of it.
The Global Forum is also keen to see that the new UK measures should allow companies the freedom to frame their strategic reports in ways that they believe best communicate how they see their company’s progress against strategy and its future prospects.
John Davies concludes: 'Narrative reporting is an important tool for communicating information which puts a company’s financial results in a wider context of internal and external factors. Focussing the mind of directors on this purpose can only be a good thing for the future of reporting in the UK.'