The Department for Business, Innovation & Skills (BIS) has published amendments to the Companies Act 2006 setting out a new UK narrative reporting framework, to be introduced in October this year says Mark Stephenson of Harris & Co accountancy services as part of their accountancy services to small and medium sized businesses.
Under the new regulations, UK companies will be required to produce a strategic report as part of their annual financial report. The strategic report for quoted companies, which is aimed at general shareholders, will provide details of the company’s business model, strategy and risks, as well as information about environmental matters and social, community and human rights issues.
There is also a requirement for an annual directors’ statement which will include more detailed information of interest to specific groups. In the case of quoted companies, this will include analysis of the company’s carbon footprint and its record on greenhouse gas emissions.
The new regulations were welcomed by ICAEW which said a discrete strategic report that focuses on the business model, strategy and risks should encourage further improvements in high quality narrative reporting. However, the Institute warned that some companies may struggle to meet the 1 October 2013 deadline for adopting this approach.
Nigel Sleigh-Johnson, head of ICAEW’s financial reporting faculty, said: ‘Companies need time to implement changes of this magnitude; the timetable is likely to prove challenging for many businesses. This is not ideal; boards certainly need to turn their attention to this change sooner rather than later.’
Ken Williamson, partner, Ernst & Young corporate governance, said that while narrative reporting was ‘an important antidote’ for the current mix of complex accounts, business models, transactions and accounting standards, there was concern that the new regulations did not go far enough to reduce clutter in reporting.
‘It was a shame there was no way of finding a workable regulatory solution to combining the strategic report concept with the earlier proposed on-line directors’ statement. Had this been possible, it would have helped to de-clutter the annual report by allowing the publication of standing data on a company’s website instead of in its annual report,’ Williamson said.