The UK’s Financial Reporting Council (FRC) has revised its Guidance on the Strategic Report to recognise the increasing importance of non-financial reporting.
The guidance encourages companies to consider wider stakeholders and broader matters that impact performance over the longer term. The FRC said it believes ‘the integration of non-financial information into the strategic report is a key part of telling a company’s story’.
The revised guidance places a greater focus on the directors’ duty to promote the success of the company under section 172 of the Companies Act 2006.
This was complemented by new legislation that introduces a specific reporting requirement on how directors regard broader matters when performing their duty, including considering the interests of employees, suppliers, customers and other stakeholders, as well as impacts on the community and environment.
The new legislation will be applicable to large companies for financial years beginning on or after 1 January 2019.
While medium-sized companies are exempt from the requirement to disclose non-financial key performance indicators (KPIs), the revised guidance recommends their use when they are ‘the most appropriate method of providing the information necessary for an understanding of the development, performance, position or future prospects of the entity’.
The IFRS Advisory Council’s Corporate Governance and Reporting Division’s executive director Paul George said: “The revised guidance underpinned by legislation will improve the effectiveness of section 172 and stimulate Board discussions on how companies are considering various factors to ensure their business is sustainable over the long-term including the impacts on the company’s key stakeholders.
“The revisions to the Guidance on the Strategic Report complement the recent changes to the FRC’s Corporate Governance Code and as a package will contribute to enhancing trust and transparency in business.”