The implementation of critical and heavy-impact accounting standards by corporates will be a focus of attention for the financial watchdog in the coming year, alongside a need for better linking of strategy to KPIs.
In a letter to audit committee chairs and finance directors, the Financial Reporting Council (FRC) has outlined key changes to reporting requirements and areas it wants to see improved.
Three major accounting standards are coming into effect over the next 18 months: IFRS 9 ‘Financial Instruments’; IFRS 15 ‘Revenues from Contracts with Customers’; and IFRS 16 ‘Leases’.
The letter, written by FRC executive director corporate governance and accounting Paul George (pictured), said the standards could potentially have a “significant impact on many companies’ results and financial position”.
“The FRC encourages companies to provide clear disclosures with reference to their existing accounting policies,” the letter said.
Better linkage and explanation of the relationships between different pieces of information within a report should also be put into effect. The FRC highlights linking KPIs and remuneration policies as an area that could provide “valuable context” for investors’ assessment of management’s stewardship.
Merely complying with reporting requirements can lead to “a lack of coverage” or a report that “appears to be lacking balance”, said the letter.
The watchdog is also pushing for companies to consider the “broader drivers” of value contributing to a company’s long-term success, particularly around areas of value that fail to be recognised in the financial statements, with examples including a highly-trained workforce and intellectual property, which can influence a firm’s activity and performance.
With regard to the viability statement, the FRC said companies should consider aligning their viability timescale more closely with specific investment or planning periods.