The new strategic report

The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 apply to financial years ending on or after 30 September 2013

Guidance produced by the Financial Reporting Council (FRC) should be reviewed by all companies, with Appendix III providing Companies Act references to the directors' report requirements.

However, the bulk of the guidance and the strategic report element relates to quoted companies, other public companies, large companies and medium-sized companies that are required under the Companies Act to comply with strategic report disclosure requirements.

The guidance also provides a useful reminder of these statutory obligations.

For financial years ending on or after 30 September 2013 the directors of a company qualifying as large or medium-sized must prepare a strategic report in addition to the directors’ report.

The requirement has been introduced by amending the Companies Act 2006 with the introduction of new sections 414A to 414D. At the same time section 417 of the act, which required the directors’ report to include a business review of the company’s activity, has been repealed.

In effect, the requirement to prepare a strategic report replaces directly that of producing a business review to be included in the directors’ report and, for unquoted companies, the contents of the strategic report mirror those required for the business review.

However, it has to be noted that the strategic report must be presented separately in the financial statements from the directors’ report and, as required by section 414D, it must be separately approved by the board of directors and signed on behalf of the board by a director or the secretary of the company.

Companies qualifying as small under Companies Act - or that would so qualify except for being or having been a member of an ineligible group - are exempted from the duty to prepare a strategic report.

For a parent company preparing group accounts for a financial year, the strategic report must be a consolidated report (a ‘group strategic report’) relating to the undertakings included in the consolidation. The group strategic report may, where appropriate, give greater emphasis to the matters that are significant to the undertakings included in the consolidation, taken as a whole.


The purpose of the strategic report is to inform members of the company and help them assess how the directors have discharged their duty to promote the success of the company under section 172 of the Companies Act.

The strategic report must:

  • contain a fair review of the company's business, that is a balanced and comprehensive analysis of the development and performance of the company's business in the period and of its position at the end of it
  • contain a description of the principal risks and uncertainties facing the company
  • to the extent necessary for an understanding of the development, performance or position of the company's business include analysis using financial key performance indicators and, where appropriate, analysis using other key performance indicators, including information relating to environmental and employee matters. ‘Key performance indicators’ are factors by reference to which the development, performance or position of the company's business can be measured effectively. A company qualifying as medium-sized for a financial year does not need to include non-financial information
  • where appropriate, include references to, and additional explanations of, amounts included in the company's annual accounts
  • contain matters otherwise required by regulations, like the Large and Medium-sized Companies and Groups Accounting Regulations (SI 2008/410), to be disclosed in the directors' report that the directors consider to be of strategic importance to the company. However, when a company chooses to disclose in the strategic report information that is required to be included in the directors’ report, it should state in the directors’ report that it has done so and should indicate which information has been disclosed elsewhere.

In addition, a quoted company's strategic report must include:

  • the main trends and factors likely to affect the future development, performance and position of the company's business and information about environmental matters (including the impact of the company's business on the environment), the company's employees, social, community and human rights issues, including information about any policies of the company in relation to those matters and the effectiveness of those policies. If the report does not contain the information on environmental matters, employees and social, community and human rights issues, it must state which of those kinds of information it does not contain
  • a description of the company's strategy and of the company's business model
  • a breakdown showing at the end of the financial year the number of persons of each sex who were directors of the company, the number of persons of each sex who were senior managers of the company (other than those who were directors) and the number of each person of each sex who were employees of the company
  • a company is not required to disclose information in the strategic report about impending developments or matters in the course of negotiation if the disclosure would, in the opinion of the directors, be seriously prejudicial to the interests of the company.

For quoted companies the strategic report is required to contain more information than was previously the case for the business review included in the directors’ report.

In particular, that is the case for the description of a company’s strategy and business model and for the breakdown of the number of persons of each sex who were directors, senior managers or employees.

Albeit the new requirements may appear more exacting, they overlap in many respects with those already applicable under the Governance Code and therefore quoted companies may already produce the additional information necessary for the strategic report as part of their corporate governance reporting.

The FRCl published guidance in July 2014; this is available from the 'Related links' section on this page.

The amendments to company legislation in respect of the new strategic report were introduced by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (S.I. 2013/1970).

These regulations, effective for financial years ending on or after 30 September 2013, also include further amendments to Companies Act 2006 and to the accounting regulations for large, medium-sized and small companies so that a number of disclosures are no longer required in the directors’ report.

In particular, the description of the principal activities of the company during the year, details of charitable donations, the policy and practice on payment of creditors and the acquisition of own shares by private companies are no longer required to be disclosed.

The regulations, however, introduce new requirements for quoted companies in respect of disclosure of greenhouse gas emissions. The directors’ report of such companies will need to indicate precise information in respect of annual carbon dioxide emissions and the methodologies used to calculate them.   

For more information, visit the 'Related links' section on this page.