Changes to the reporting regime

Print publication


Narrative reporting
The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, which came into effect on 1 October 2013, change the current narrative reporting framework under the Companies Act 2006. Under the new framework companies will prepare a “strategic report”, which will be a separate part of the annual report, and not simply a section of the directors’ report.

For all companies, the strategic report must contain a fair review of the company’s business, and a description of the principal risks and uncertainties facing the company. The review must be a balanced and comprehensive analysis of both the development and performance of the company’s business during the financial year, and the position of the company’s business at the end of that year, consistent with the size and complexity of the business.

Some disclosures that were required under the previous “business review” regime are no longer required – the requirements to disclose the principal activities of the group, the policy and practice on payment of creditors, charitable donations over £2,000 and the difference between the market value and balance sheet value of land.

There are enhanced reporting requirements for Main Market companies. To the extent necessary for an understanding of the development, performance or position of the company’s business, the report must include:

  • the main trends and factors likely to affect the future development, performance and position of the company’s business
  • 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 information on environmental matters, the company’s employees and social, community and human rights issues, it must state which of those kinds of information it does not contain.

For Main Market companies, the strategic report must also contain:

  • a description of the company’s strategy
  • a description 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
    • senior managers of the company (other than directors) (a senior manager being an employee of the company with responsibility for planning, directing or controlling the activities of the company, or a strategically significant part of the company)
    • employees of the company

Executive pay
Changes to the reporting, disclosure and corporate governance regime concerning executive pay also came into effect from 1 October 2013. The reforms, which apply to Main Market companies only, will require the directors’ remuneration report to be split into two parts: a policy report setting out the company’s forward-looking policy on remuneration, which will be subject to a binding shareholder vote every three years, and an implementation report detailing the actual payments made to directors in the last financial year and which will be subject to an annual advisory shareholder vote. The legislation applies to financial years ending on or after 30 September 2013.

Mandatory reporting of greenhouse gas emissions
Main Market companies must now include details of the company’s greenhouse gas emissions for financial years ending on or after 30 September 2013. We considered this in more detail in our last newsletter.

WM comment
For companies other than Main Market companies the changes to the reporting regime should not present any difficulties. However, for Main Market companies the changes are a significant departure from the previous regime. Directors and company secretaries should familiarise themselves with the new reporting obligations at the earliest opportunity.