News - 2015
24 November 2015 - FRC publishes Lab project report: Disclosure of dividends - policy and practice
The FRC's Financial Reporting Lab (the Lab) has today issued a project report Disclosure of dividends - policy and practice; exploring how companies can make dividend disclosures more relevant for investors.
Building from the contributions of 19 companies and 31 investors, the report explains, including through the analysis of existing good, proportionate disclosure practice, why investors want information about dividends and what they want to know.
Dividend disclosures need to be clear and provide adequate information so that investors can evaluate the board’s stewardship of the company and assess prospective dividends.
Investors want to know:
- Why has the company selected the dividend policy?
- What will the policy mean in practice?
- What are the risks and constraints associated with the policy?
- What was done in practice to deliver under the policy?
Investors said that they also want disclosure of the circumstances in which companies expect to pay special dividends or buy back shares, and whether they are in the best interests of shareholders.
All investors consider that the disclosure of dividend resources, i.e. cash and the amount of the company’s reserves legally available for distribution under company law (distributable profits), is helpful in circumstances where the ability of the company to pay dividends is, or might be, insufficient relative to the level of dividends indicated by the policy. Some investors believe that distributable profits are always required to be disclosed. The FRC understands that the Companies Act 2006 does not require companies to identify separately distributable profits on their balance sheet.
Investors find that the dispersal of disclosures across annual reports and other communications results in repetition, and makes it hard for them to find the information they need. They said it would be helpful to group together similar or related disclosures on dividends, or to draw links between the disclosure elements.
A copy of the report can be downloaded here.
24 July 2015 - Lab call for participants: Project on Business model reporting
The Financial Reporting Lab (the Lab) invites companies, investors and analysts to participate in a project on effective Business model reporting.
It is envisaged that this project will assist companies to understand what information the investment community values in business model reporting, and how the information is used. The Lab anticipates that the project will explore a number of characteristics:
Definition of ‘business model’;
Preparation of business model disclosures;
Investor use of business model disclosures; and
Attributes that characterise good business model reporting.
This project is the first of a series of projects examining best practice reporting in the following interrelated areas of disclosure:
Business model reporting;
Principal risk reporting; and
Viability statement reporting.
The call for participation can be found below:
Financial Reporting Lab Call for participants: Project on Business model reporting
Companies, investors and analysts are requested to express interest in participating in the Business model reporting project by 15 September 2015 either via email at: email@example.com, or by contacting Sue Harding by telephone on 020 7492 2442 or Carl Renner on 020 7492 2455.
17 June 2015 - Lab event
The Lab event “Reporting Innovation” was held on 28 May. Videos of the sessions as well as the slides used at the event are now available on the Lab’s event page - Lab Event 2015.
29 May 2015 - Lab implementation study: Reporting of Audit Committees
The Lab publishes its implementation study on Reporting of audit committees. The study follows on from The Financial Reporting Lab’s report Lab project report: Reporting of Audit Committees published in October 2013. This Lab implementation study considers how well 34 companies from across the FTSE 350 have implemented investors’ preferences highlighted in the Lab’s original report. Key findings include:
- Style of the audit committee report – 82% of companies presented their AC report as a separate report and all committees wrote in the first person. 62% included a photo and 24% included the signature of the AC chair; both are ways to personalise the report preferred by investors.
- Significant reporting issues – 94% of issue disclosures contained clear context and 84% detailed the AC’s actions, but improvement in explanations to make each issue disclosure specific to the company and to include the conclusion reached by the AC and the rationale could be made.
- Assessing external auditor effectiveness – 41% of companies provided a reasonably good level of detail of their assessment process. The FRC has issued practice aid to assist in AC’s carrying out this assessment and hope that this will prompt further improvement in reporting.
- Appointing the auditor – disclosures largely meet investor preferences, but clarity in relation to timing of next audit tender, and current audit partner tenure, rotation, and name should be considered; and
- Safeguards on non-audit services – 94% of AC reports included the non-audit services policy and 73% described the criteria for AC approval. However, improvement in reporting of the nature of non-audit services received, together with the relevant fee, and clearly stating the ratio of non-audit to audit fees, could be made by many companies.
The Lab encourages audit committees to continue to improve their reports to better communicate with investors, and recognises that some may be taking further steps in the second year of implementation.
A copy of the full study can be found here.
28 May 2015 - FRC publishes Lab project report on Digital present
The Financial Reporting Lab (Lab) has today published Digital present, its report on investors’ views on digital communication used by companies in their corporate reporting. The report shows that investors welcome digital reporting where it is helpful in meeting their needs for corporate information.
The Lab found:
- The annual report and its contents are of paramount importance to investors. PDF, with its ‘search’ capabilities, is investors’ preferred format for digital annual reports;
- PDF offers a range of ways to blend the best of paper and digital formats;
- Companies could make better use of PDFs by thinking about their presentation on screen, keeping them simple, and optimising them for searching; and
- Investors need to absorb information on many companies in an efficient manner. Digital communications are of most interest to investors when they bring new information to investors’ attention while avoid duplication, and provide clarity on the purpose of each digital channel or tool and the scope of information it contains.
The report shares practical suggestions on how companies can improve their digital corporate reporting across a range of communication channels, tools and PDF annual reports.
Sue Harding, Director of the Financial Reporting Lab, said: “Investors have shown they are open to innovation when it meets their needs to access information relevant to their analysis, across companies and time. To enhance current digital reporting methods and innovate further, it will be important to build on the attributes identified as being most helpful. We will do this in our next phase of work on the Digital Future.”
The Lab will build on the findings from this Digital Present report, to inform its next phase of work on the Digital Future. It will work with companies and investors to develop ideas for optimising the opportunities digital reporting offers to companies and investors.
The Lab has released a survey alongside the Digital Present report seeking views on digital reporting from those involved in the production and use of corporate reporting. The survey will be open until the end of June.
A copy of the report can be downloaded here.
Watch Digital Present In 60 Seconds
07 May 2015 - Lab event: Reporting innovation
The Financial Reporting Lab is holding an event on 28 May with the theme 'Reporting innovation'. All welcome! Click here to view videos and slides from the event.
20 January 2015 - Clear & Concise event in Brussels: Shaping the future of financial and non-financial reporting
On 20 January the FRC held an event in Brussels to discuss its Clear & Concise programme, and how its various branches fit in with developments in Europe. There were around 50 attendees at the event held at the FRC's Brussels office.
Here are the slides on the Lab, presented by Sue Harding, Director of the Lab.
Click here for the full presentation.
05 February 2015 - FRC publishes Lab case study report on William Hill accounting policies
The Financial Reporting Council’s (FRC) Financial Reporting Lab (Lab) has found that investors support fresh approaches to the disclosure of accounting policies.
Building on the Lab’s recent report ‘Accounting policies and integration of related financial information’, the Lab has published a case study conducted among some of William Hill plc’s investors, retail shareholders, and analysts. The study highlights the company’s experimentation with accounting policy disclosure. The company's investors and analysts liked the clear identification of significant accounting policies, and effective disclosure of policy information in order to understand the business and its performance.
This is the first of a series of case studies being run by the Lab to support the FRC’s Clear & Concise reporting initiative that promotes transparent and accessible reporting.
The full report can be found here.