Material problem

Boards and their companies have been reminded they don’t have to disclose everything in their annual reports, but should consider “materiality”.

The Financial Reporting Council (FRC) makes the point in a paper offering guidance on what is “material” in a bid to help companies shorten annual reports.

Mark Babington, executive director of regulatory standards at the FRC, says: “Materiality is not about disclosing everything; it is about disclosing what matters. Companies should be confident in exercising judgement and focusing on reporting on information that informs investor decisions and avoiding immaterial disclosures that can reduce clarity.” It’s a material world.

Giving no quarter

The debate in the US over quarterly reporting versus semiannual reporting is heating up.

Well-known investor advocate Nell Minow of ValueEdge Advisors added her voice to the fray this week. She was, perhaps, a little more colourful than everyone else in advocating that quarterly reporting remain the standard instead of allowing companies to voluntarily switch.

In this, she raised the spectre of shareholder litigation if companies switch and things go wrong. The courts, she suggested, might hear claims that in moving to semiannual reporting, boards were “intentionally trying to obfuscate their results”. Ouch!

She added that the underlying principle of US rulemakers should, in the words of Supreme Court Justice Louis Brandeis in 1913, be: “Sunlight is said to be the best of disinfectants.” That one’s going to smart.

Apples and oranges

Shareholder adviser Minerva Analytics is this week worried about an emerging reporting asymmetry in Europe as it finalises new green reporting standards.

The concern comes on the back of publication of new European Sustainability Reporting Standards (ESRS).

During revisions, the number of data points to be reported under ESRS has been reduced, and the number of non-EU foreign companies subject to the reporting rules cut from around 10,000 to 1,200.

“For multinational companies that may reduce compliance complexity. For institutional investors, it creates a new asymmetry,” Alex Whitebrook writes in a blog for Minerva.

“European companies and non-EU peers operating in the same market may no longer be reporting against the same information set, potentially making sector comparison, portfolio monitoring and stewardship analysis more difficult.” It certainly will.