There have been many small changes to corporate reporting legislation over the last ten years which, when added together, have had a dramatically positive impact on the way that most companies report. This isn’t just about compliance. Annual Reports now, generally, tell a much better and clearer and more honest story than they used to.
Not least amongst these changes is the FRC’s requirement that a company’s Annual Report is signed off as ‘fair, balanced and understandable’ (FBU) by the Board. In simple terms, there mustn’t be anything significant hidden in the numbers in the back half of the book that isn’t discussed in the front half. It’s about transparency and clarity and Boards taking responsibility.
While almost all listed companies do comply with this, the best ones have embedded the concept into their Governance processes. They have used the legislation to engage the Board usually via the Audit Committee and in turn senior management and get them to properly think about and contribute to the content of the Annual Report.
Internally, a responsible Board will want to know that they can make this claim. They will want to know that there has been a robust process to consider the content in light of the FBU requirement by the key contributors to the Report – Finance, Strategy, Risk, Reward, IR, Secretariat. And this means that those contributors really do need to review and discuss the content of the whole book, not just their bit! It makes for a more joined-up process and story and it is overwhelmingly a good thing. More communication and proper collaboration internally don’t only help to make a better Report but it helps to make a better business.
To read more on this topic take a look at the ICAS research in their publication ‘Fair Balanced and Understandable: Enhancing Corporate Reporting and Assurance?’.