Chapter 6: Annual or Integrated Report Flashcards
(174 cards)
1
Q
What are the legal requirements for financial reporting under the Companies Act 2006?
A
All companies, whether trading or not, must:
Keep accounting records (CA2006 s. 386).
Prepare and publish financial statements for each financial period.
Example: Even if a company is not actively trading, it must still maintain records and submit financial statements.
2
Q
When does a company’s first financial period start and end?
A
The first financial period begins on the date of incorporation and ends on the company’s accounting reference date.
The accounting reference date cannot be more than 18 months from incorporation.
Example: A company incorporated on 15th March 2023 will have a default accounting reference date of 31st March 2024 (end of the incorporation anniversary month).
3
Q
What is the length of subsequent financial periods?
A
After the first financial period, each financial year is normally 12 months.
However, a company may amend its accounting reference date.
Example: If a company wants to align its financial year with the tax year (ending 5th April), it can change its accounting reference date.
4
Q
Why might a company change its accounting reference date?
A
A company can extend or shorten its financial period to:
Align with its trading cycle.
Match the financial year of other group companies.
Coincide with the UK tax year.
Suit other business needs decided by directors.
Example: A parent company with multiple subsidiaries may adjust its subsidiary’s financial period to match the group’s consolidated reporting cycle.
5
Q
Who is responsible for producing the annual report?
A
The annual report is a collaborative effort involving multiple departments. The finance department handles financial disclosures.
The company secretary oversees the governance sections and ensures legal and regulatory compliance.
6
Q
What sections of the annual report does the company secretary oversee?
A
The company secretary is responsible for the front-end narrative of the report, including:
Chair’s statement.
Strategic report.
Directors’ report.
Remuneration report.
Corporate governance report.
Reports from board committees (e.g., audit, nomination, risk).
Ensuring all statutory and governance disclosures are made (either within reports or in the notes to the accounts).
7
Q
Why is it important to have one department or individual in charge of the process?
A
The annual report has multiple contributors, so one person or team must coordinate everything to ensure:
Timely completion.
Statutory compliance.
Consistency in style and formatting.
Without centralised control, different sections might appear disjointed, making the report look unprofessional.
8
Q
What elements of consistency must be maintained in the annual report?
A
Visual consistency: Fonts, colours, and formatting must be standardised.
Writing style consistency: Tone and language must be uniform across sections.
Structural consistency: Reports should follow a clear, logical order.
9
Q
What are the different company size categories for financial reporting under the Companies Act 2006?
A
The Act allows different-sized companies to file accounts with varying levels of disclosure. The categories are:
Micro-entities (very small companies with minimal reporting requirements).
Small companies (reduced reporting but more disclosure than micro-entities).
Medium-sized companies (some exemptions but fuller accounts than small companies).
Unlisted companies (default disclosure requirements).
Listed companies (additional disclosure requirements under Listing Rules)
10
Q
What is a micro-entity, and how does a company qualify?
A
A micro-entity is a very small company that meets at least two out of three criteria under CA2006 s. 384A(4):
Turnover: ≤ £632,000
Balance Sheet Total: ≤ £316,000
Employees: ≤ 10
11
Q
Can any company qualify as a micro-entity?
A
No, certain companies are excluded from micro-entity status (CA2006 s. 384B(1)):
Companies excluded from the small companies’ regime.
Investment undertakings.
Financial holding undertakings.
Credit or insurance institutions.
Charities.
Parent companies preparing group accounts.
Subsidiaries included in consolidated group accounts.
e.g. A charity or a bank cannot qualify as a micro-entity.
12
Q
What statement must be included in the balance sheet?
A
The balance sheet must contain a statement that the accounts have been prepared under the micro-entity provisions.
This statement must be clearly displayed above the director’s signature in:
The accounts sent to members.
The copy submitted to the Registrar.
12
Q
What are the filing requirements for micro-entities?
A
Micro-entities have simplified reporting obligations.
Directors’ Report ✓ Required
Strategic Report Optional
Profit & Loss Account ✓ Required (abridged)
Balance Sheet ✓ Required (abridged)
Auditor’s Report Optional (if applicable)
Notes to Accounts ✓ Required (abridged)
13
Q
What are the deadlines for filing micro-entity accounts?
A
Standard deadline: 9 months after the financial year-end.
If financial year is shortened:
9 months after new financial year-end OR
3 months after the change is registered, whichever is later.
14
Q
What are small company accounts, and what advantages do they provide?
A
Small companies can prepare and file abridged accounts with reduced disclosures.
They may choose not to send their directors’ report or profit & loss account to members or the Registrar. A small company can submit simplified financial statements, reducing regulatory burden.
15
Q
What are the eligibility criteria for a small company?
A
A company qualifies as small if it meets two out of three criteria under CA2006 s. 382(3):
Threshold (Individual Accounts)
Turnover ≤ £10.2 million
Balance Sheet Total ≤ £5.1 million
Employees ≤ 50
Threshold (Group Accounts)
Turnover ≤ £10.2 million net or £12.2 million gross
Balance Sheet Total ≤ £5.1 million net or £6.1 million gross
Employees ≤ 50
16
Q
Can all companies qualify as small-sized companies?
A
No, certain companies cannot be classified as small if, at any time during the financial year, they are:
A public company (PLC).
An authorised insurance company, bank, e-money issuer, or investment firm.
A company carrying out insurance market activities.
A member of an ineligible group (CA2006 s. 384(1)).
17
Q
What is an ineligible group under CA2006 s. 384(2)?
A
A group is ineligible if any member is:
A traded company.
A corporate body with shares admitted to trading on a regulated market in the EEA.
A non-small company authorised under FSMA2000 to conduct regulated activities.
A small company engaged in banking, insurance, or investment activities.
A company engaged in insurance market activity.
Example: A small company that is part of a larger financial services group would be ineligible.
18
Q
What special statements must be included in small company accounts?
A
Balance sheet statement – Must include a statement above the director’s signature that the accounts were prepared under the small companies’ regime.
Abridged accounts statement – If an abridged balance sheet or profit & loss account is prepared, a note must state that members have agreed to this under CA2006 s. 444(2A).
Small company exemption statement – If the company uses the small company exemption in its directors’ report, it must state this above the director’s or company secretary’s signature.
19
Q
What are the filing requirements for small companies?
A
Small companies must submit accounts to members and the Registrar within nine months of the financial year-end.
Report ?
Directors’ Report ✓ Required
Strategic Report Optional
Profit & Loss Account ✓ Required (abridged)
Balance Sheet ✓ Required (abridged)
Group Accounts Optional
Auditor’s Report Optional (if audited)
Notes to Accounts ✓ Required
20
Q
What happens if the financial year is shortened?
A
The filing period remains nine months from the new financial year-end OR three months from the date the change was registered, whichever is later.
21
Q
What are medium-sized company accounts, and what advantages do they provide?
A
Medium-sized companies can prepare and file abridged accounts with reduced disclosure requirements.
They may choose not to send their directors’ report or profit & loss account to members or the Registrar.
Example: A medium-sized company can file simplified financial statements, reducing administrative burden.
22
Q
What are the eligibility criteria for a medium-sized company?
A
A company qualifies as medium-sized if it meets at least two out of three criteria under CA2006 s. 382(3):
Criteria
Turnover ≤ £36 million
Balance Sheet Total ≤ £18 million
Employees ≤ 250
22
Q
Can all companies qualify as medium-sized?
A
No, certain companies cannot be classified as medium-sized if, at any time during the financial year, they are:
A public company (PLC).
Authorised under FSMA2000 Part 4 to carry out regulated activities.
A company engaged in insurance market activities.
An e-money issuer.
A member of an ineligible group (CA2006 s. 467(1)).
Example: A publicly traded insurance company cannot qualify as a medium-sized company.
22
What is an ineligible group under CA2006 s. 467(2)?
A group is ineligible if any of its members are:
A traded company.
A corporate body with shares admitted to trading on a regulated market in an EEA state.
A non-small company authorised under FSMA2000 to conduct regulated activities.
A small company engaged in banking, insurance, or investment activities.
An e-money issuer.
Example: A medium-sized company that is part of a larger banking group would be ineligible.
23
What are the filing requirements for medium-sized companies?
Medium-sized companies must submit accounts to members and the Registrar within nine months of the financial year-end.
Report
Directors’ Report ✓ Required
Strategic Report ✓ Required (abridged)
Profit & Loss Account ✓ Required (abridged)
Balance Sheet ✓ Required (abridged)
Group Accounts If appropriate
Auditor’s Report ✓ Required (if audited)
Notes to Accounts ✓ Required
23
What special statements must be included in medium-sized company accounts?
Balance sheet statement – Must include a note confirming the accounts were prepared under the medium-sized companies' regime.
Strategic report statement – Medium-sized companies can omit key performance indicators (KPIs) related to non-financial information.
Accounting standards statement – If preparing accounts under UK GAAP instead of IAS, they may omit disclosure of compliance with accounting standards.
Related party transactions statement – Medium-sized companies can omit disclosure of related party transactions from accounts sent to members.
23
What happens if the financial year is shortened?
The filing period remains nine months from the new financial year-end OR three months from the date the change was registered, whichever is later.
23
What do full company accounts include?
Full accounts must contain the following:
Report
Directors’ Report ✓ Required
Strategic Report ✓ Required
Profit & Loss Account ✓ Required
Balance Sheet ✓ Required
Group Accounts If appropriate
Auditor’s Report ✓ Required
Notes to Accounts ✓ Required
24
Which companies must prepare full accounts?
Companies that do not qualify as micro, small, or medium-sized must prepare and file full accounts.
Smaller companies can voluntarily file full accounts instead of using simplified disclosure options.
25
What are the two types of full accounts under CA2006?
Companies can prepare accounts using:
Companies Act accounts (CA2006 s. 396).
IAS (International Accounting Standards) accounts (CA2006 s. 395).
26
When can a company switch between IAS and Companies Act accounts?
Once a company files IAS accounts, it must continue filing IAS accounts unless:
It becomes a subsidiary of a parent company that does not use IAS accounts.
The company or its parent ceases to have shares traded on an EEA-regulated market.
The company ceases to be a subsidiary.
Directors choose to switch after five years of filing Companies Act accounts.
26
What are the filing deadlines for full accounts?
Private company: Within 9 months of the financial year-end
Public company: Within 6 months of the financial year-end
If the financial year is shortened, the deadline is 9 or 6 months from the new year-end, OR 3 months after the change is registered, whichever is later.
27
What are the additional requirements for public companies?
Public companies (PLCs) must:
Lay audited accounts before members at a general meeting within 6 months of the financial year-end (CA2006 s. 437).
28
Which companies are exempt from audit requirements?
Small companies that qualify under CA2006 s. 477.
Dormant companies (no significant transactions).
Subsidiaries (if their parent company provides a guarantee).
29
Are companies required to include every type of note in the accounts?
No. Notes to accounts are only required if a specific type of transaction has occurred.
If a company has not engaged in certain transactions, it does not need to include the related notes.
29
What determines the content of full accounts for private companies?
The Companies Act 2006 sets out standard reporting requirements, but the actual content depends on:
The company’s activities.
The nature of transactions that require additional disclosures.
30
What is the purpose of notes to the accounts?
To explain financial transactions in more detail where necessary.
To ensure compliance with accounting standards.
To provide transparency for shareholders and regulatory bodies.
30
What are the core components of full accounts for a private company?
A private company filing full accounts must include:
Directors’ Report ✓ Required
Strategic Report ✓ Required
Profit & Loss Account ✓ Required
Balance Sheet ✓ Required
Group Accounts (if applicable) If appropriate
Auditor’s Report ✓ Required (unless exempt)
Notes to Accounts ✓ Required
31
What happens if a private company chooses to prepare abridged accounts instead?
Abridged accounts have fewer disclosure requirements.
The strategic report and detailed profit & loss account may not be required.
Shareholders must approve abridged accounts before filing.
32
What additional disclosure requirements apply to publicly traded companies?
Companies with publicly traded shares must comply with extra disclosure requirements due to their listing on a regulated market. These requirements are designed to:
Enhance transparency for investors.
Ensure accountability of directors and management.
Provide a clear picture of financial stability and governance.
33
What additional disclosure requirements apply to quoted companies?
Quoted companies must comply with additional accounting and financial disclosure requirements set by:
The Companies Act 2006 (CA2006).
The FCA Listing Rules.
The Disclosure and Transparency Directive (DTD).
Example: A quoted company must publish detailed financial statements and governance reports beyond what is required for private or smaller public companies.
33
What defines a listed company?
A listed company has securities listed on the Official List maintained by the Financial Conduct Authority (FCA). The securities must be eligible for trading on a regulated market.
33
What additional reports must be included in a listed company’s annual report?
3.1 Corporate Governance Report
Explains how the company complies with the UK Corporate Governance Code.
Covers board structure, committees, risk management, and internal controls.
Example: A listed company must disclose how it appoints and evaluates its board members.
3.2 Directors' Remuneration Report
Includes a detailed report on executive pay.
Shareholders must approve the remuneration policy at least once every three years.
The remuneration report is included in the annual report when being proposed to shareholders.
Example: Shareholders at an AGM vote on executive pay policies, ensuring transparency.
3.3 Viability Statement
Assesses the company’s ability to continue operating over the long term.
Goes beyond the standard going concern statement.
Requires an evaluation of risks and uncertainties that may affect business viability.
Example: A company explains its financial planning strategy to ensure long-term stability.
3.4 Business Model Explanation
Describes how the company generates revenue and profit.
Explains the company’s strategy and competitive advantages.
Provides investors with insights into long-term sustainability.
Example: A technology company might explain its subscription-based revenue model and growth strategy.
34
What is a quoted company under the Companies Act 2006?
A quoted company is defined under CA2006 s. 385 as a company whose equity share capital is:
Listed on a UK stock exchange (e.g., London Stock Exchange (LSE)).
Officially listed in an EEA state.
Admitted to dealing on a major US exchange (e.g., New York Stock Exchange (NYSE) or Nasdaq).
Example: A company with shares traded on the London Stock Exchange and Nasdaq qualifies as a quoted company.
34
How does a quoted company differ from a listed company?
The term quoted company includes all listed companies but also covers companies listed on exchanges in the EEA and the US.
A listed company is a company with shares on the UK’s Official List, while a quoted company has a broader definition under CA2006.
Example: A UK-based company listed on the London Stock Exchange and Nasdaq is a quoted company but would not be considered a listed company under UK Listing Rules alone.
35
Why do quoted companies have stricter disclosure rules?
Investor Protection – Public investors rely on transparent financial reporting.
Market Regulation – Ensures compliance with international financial standards.
Corporate Governance – Encourages accountability and long-term business sustainability.
Example: A quoted company must disclose executive remuneration, business risks, and financial viability statements to protect shareholders and market integrity.
36
What are the specific filing obligations of quoted companies under CA2006 s. 447?
Quoted companies have enhanced filing obligations compared to private and unlisted public companies. They must file:
Annual accounts (financial statements).
Directors' report.
Strategic report.
Any separate corporate governance statement.
Directors’ remuneration report.
Auditor’s report on the auditable parts of the directors’ remuneration report.
37
What is the deadline for publishing the annual report and accounts for a quoted company?
A quoted company must publish its annual financial report within four months of the financial year-end.
The report must be freely available to the public for at least 10 years after publication (DTR 4.1.3 & 4).
38
Can companies issue summary financial statements instead of full accounts?
Previously, companies could send summary financial statements to members instead of the full report and accounts.
This option has been withdrawn.
Now, companies may send the strategic report with supplemental material instead of the full statutory accounts.
Any shareholder receiving the strategic report can request the full accounts (CA2006 s. 426).
39
What additional disclosures must quoted companies include in the strategic report?
Quoted companies must include a copy of the section of the remuneration report that sets out the single total figure for directors’ remuneration (CA2006 s. 426A(2)(e)).
Example: The strategic report must show each director’s total earnings, including salary, bonuses, and incentives.
40
What additional disclosures must a listed company include in its annual financial report?
Under DTR 4.1.5, listed companies must provide:
1.1 Management Report (DTR 4.1.8–11)
A fair review of the company’s business, including:
A balanced and comprehensive analysis of the company’s development, performance, and position.
Key financial and non-financial performance indicators, including environmental and employee-related matters.
Details of significant events since the financial year-end.
Future developments and research & development activities.
Information on any share buybacks and overseas branches.
Disclosure of financial instruments and risk management policies, including exposure to:
Price risk
Credit risk
Liquidity risk
Cash flow risk
Example: A manufacturing company must disclose its future expansion plans and how it manages price fluctuations in raw materials.
41
What are responsibility statements, and why are they required?
Responsibility statements confirm that the financial statements are accurate and comply with applicable accounting standards (DTR 4.1.12).
Those responsible must declare that the annual report gives a true and fair view of the company’s financial position.
Example: A company's board must state that the financial statements have been prepared correctly in accordance with IFRS.
42
What accounting standards must listed companies follow?
If the company prepares consolidated accounts → It must use IFRS (DTR 4.1.6R). Parent company accounts prepared in accordance with the law of the country of incorporation.
If the company does not prepare consolidated accounts → It must follow the accounting laws of its country of incorporation.
Financial statements must be audited, and the full text of the auditor’s report must be published (DTR 4.1.7R).
Example: A UK-listed company that owns multiple subsidiaries must prepare IFRS-compliant consolidated accounts.
43
What additional disclosures are required under LR 9.8.4?
Listed companies must also disclose:
4.1 Financial Information
Capitalised interest and related tax relief.
Any unaudited financial information published in circulars or prospectuses, with an explanation of any variance of 10% or more between estimated and actual profit.
4.2 Directors’ and Shareholders’ Arrangements
Details of long-term incentive schemes for directors.
Any director waivers of salary, bonuses, or other payments.
Any share issues made for cash without prior shareholder approval, including:
Types of shares issued.
Number of shares and their total value.
Market price on the issue date.
Names of recipients (if fewer than six).
Example: A listed company must disclose if a director voluntarily waives part of their bonus.
44
What disclosures are required for contracts and controlling shareholders?
Any significant contracts involving a director with a material interest.
Any agreements between the listed company and a controlling shareholder.
If a controlling shareholder provides services to the company, disclosure is required unless:
The services are part of their normal business operations.
The contract is not significant to the company.
Example: A company must disclose if its majority shareholder provides consulting services that impact company operations.
45
What additional disclosures are required for UK-incorporated listed companies (LR 9.8.6R)?
A UK-listed company must include:
6.1 Directors’ Interests
A list of directors' shareholdings (as required under MAR 19).
Any changes in directors’ holdings up to one month before the AGM notice.
6.2 Shareholder Information
A statement of shareholder voting rights and any disclosures made.
A statement of going concern status, prepared following FRC guidance.
6.3 Share Buybacks and Treasury Shares
Any shareholder authority for share repurchases still valid at year-end.
If shares were purchased outside the open market, the names of the sellers.
If treasury shares were sold for cash, details of the buyers.
Example: A company buying back shares through private agreements must disclose who sold the shares.
46
What corporate governance disclosures must listed companies make?
A statement explaining how the company applies the UK Corporate Governance Code or reasons for non-compliance.
Specific statements required under the Governance Code, including:
7.1 Board & Workforce Engagement
If the board is not satisfied that company culture aligns with business strategy, it must explain the corrective actions taken (Provision 2).
If the board has not implemented workforce engagement mechanisms, it must explain alternative arrangements (Provision 5).
7.2 Shareholder Voting & Board Independence
If 20% or more shareholders vote against a resolution, the company must report on how it consulted shareholders and responded to concerns (Provision 4).
If the CEO later becomes chair, the company must justify the decision to shareholders (Provision 9).
7.3 Board Meetings & Evaluations
Names of independent non-executive directors and justification for their independence if special circumstances apply (Provision 10).
Responsibilities of the chair, CEO, and senior independent director, plus a record of board meeting attendance (Provision 14).
Justification for allowing a director to take an external appointment (Provision 15).
Identity of external board evaluation facilitators and their connection to the company (Provision 21).
Example: A company must report how it consulted shareholders if 20% or more voted against an executive pay proposal.
47
What climate-related financial disclosures are required?
Listed companies must include a climate-related financial disclosure statement consistent with the Task Force on Climate-Related Financial Disclosures (TCFD) (LR 9.8.6R(8)).
Example: A company must disclose its carbon footprint and climate risks as part of its financial reporting.
48
What additional reporting is required for directors and service contracts?
Details of directors' service contracts for any directors up for re-election at the AGM.
If a director does not have a service contract, a statement confirming this.
Example: A listed company must state if its CEO has a fixed-term or rolling contract.
48
What is a dormant company?
A dormant company is one that has had no significant accounting transactions since the end of its previous financial year or, if newly incorporated, since its incorporation.
48
What legal provision defines a dormant company?
Section 1169 of the Companies Act.
49
What transactions are disregarded when assessing dormant status?
The following transactions do not affect dormant status:
Payment for shares taken by subscribers to the memorandum.
Fees paid to the Registrar of Companies.
Civil penalties imposed by the Registrar of Companies (e.g., late filing penalties).
50
What transactions would disqualify a company from being considered dormant?
Any other transactions that must be recorded in the company’s accounting records, such as:
Bank interest.
Bank charges.
51
When can a company claim exemption from audit despite being a subsidiary or public company?
A company that would normally not qualify for audit exemption under Section 480 can claim it if:
It was dormant throughout the financial year (Section 394A).
All members agree.
A parent guarantee has been provided.
It is included in the consolidated accounts of its parent.
52
When is a company ineligible for dormant status?
A company cannot claim dormant status if it is required to prepare group accounts or if, at any time during the financial year, it was:
An authorised insurance company.
A banking company.
An e-money issuer.
A MiFID (Markets in Financial Instruments Directive) investment company.
A UCITS management company.
Engaged in insurance market activities.
53
What form should be used for filing dormant accounts?
Companies that have been dormant since incorporation can use Companies House form AA02. Note, subsidiary companies cannot use it because it does not include the required disclosures for subsidiaries.
54
What are the "front end" reports in a company’s annual report and accounts?
The following reports are considered the "front end" as they appear before the financial statements:
Strategic report
Directors’ report
Directors’ remuneration report
Corporate governance statements
55
What are the differences between listed and quoted companies?
A listed company is one listed in the Official List maintain by the UKLA. A quoted company is a company whose equity
share capital has been listed in the UK, officially listed in an EEA state or admitted to dealing on the New York Stock Exchange or Nasdaq
56
A listed company has additional disclosure requirements, where can these be found?
Listing Rules and Disclosure and Transparency Rules
57
What is the purpose of the strategic report?
The strategic report is intended to:
Inform the company’s members about the company’s strategy, performance, and risks.
Help members assess how the directors have performed their duty under CA2006 s. 172 (to promote the success of the company for the benefit of its members).
58
Is the strategic report mandatory?
Yes, it is required under CA2006 s. 414A.
59
What is the purpose of the directors’ report?
It provides an overview of the company’s financial position at the end of each financial period.
60
Why is the directors’ report required to follow a prescribed format?
The prescribed format ensures:
Comparability over time (tracking a company’s progress across different periods).
Comparability between different companies within the same industry.
60
Is the director's report mandatory?
Yes.
61
Why was the directors’ remuneration report introduced?
To address concerns that directors were unfairly rewarding themselves.
62
What legislation requires quoted companies to publish directors’ remuneration details?
CA2006 s. 420.
63
What is the format requirement for the directors’ remuneration report?
It must be presented in a prescribed format.
It must include details of various elements of directors’ remuneration.
Remuneration figures must be calculated using prescribed formulae.
63
Why is a prescribed format important for the remuneration report?
The standardised format ensures:
Transparency in how directors are compensated.
Comparability across financial years and between different companies.
64
Who is required to prepare a strategic report?
The directors of any company that is not classified as small must prepare a strategic report.
65
What is the purpose of the strategic report?
It is intended to:
Inform members about the company’s strategy and performance.
Help them assess how directors have fulfilled their duty under CA2006 s. 172 to promote the success of the company.
66
What key factors must directors consider when promoting the success of the company under s. 172?
Directors must have regard to:
The likely long-term consequences of their decisions.
The interests of employees.
The need to foster relationships with customers, suppliers, and others.
The impact of company operations on the community and environment.
The desirability of maintaining a high standard of business conduct.
The need to act fairly among members of the company.
67
What additional requirement was introduced in 2019 regarding the strategic report?
CA2006 s. 414CZA requires all companies (except small and medium-sized ones) to include a s. 172(1) statement in their strategic report, describing how directors have considered s. 172(1)(a)–(f) in their decision-making.
68
What did a review of s. 172 statements reveal?
Almost two-thirds of statements focused mainly on stakeholders and described the engagement process rather than the actual outcomes.
69
What steps should companies take to ensure proper disclosure in the s. 172 statement?
Identify key stakeholders and explain why they are important (e.g., shareholders, employees, customers, suppliers, regulators, communities).
Clearly outline principal decisions made during the year and how stakeholder engagement influenced them.
Maintain records of major decisions, ensuring evidence from earlier planning meetings is available (company secretaries play a key role in this).
Use specific examples to illustrate how s. 172 elements were considered in decision-making.
Show both positive and negative outcomes.
Build on previous reports, explaining how past decisions have impacted the company.
Ensure all six elements of s. 172 are addressed in the report.
Demonstrate the directors' role in decision-making and corporate culture.
Highlight both direct and indirect contributions to decision-making.
69
Where should the s. 172 statement be located?
Preferably within the strategic report. If placed elsewhere, cross-referencing in the strategic and directors' reports is required to ensure a complete picture.
70
What additional requirement applies to listed companies in the strategic report?
Governance Code provision 1 requires listed companies to:
Explain the main trends and factors affecting the company’s long-term success and viability.
71
What is the viability statement, and where does it come from?
Governance Code provision 31 requires boards to:
Assess company prospects, explain the time period considered, and justify why it is appropriate.
Confirm if the company has a reasonable expectation of continuing operations and meeting liabilities.
Highlight any assumptions or qualifications affecting this assessment.
This requirement was first introduced in the 2014 Governance Code.
72
What does CA2006 s. 414C(3) require regarding the strategic report’s review?
The strategic report must:
Provide a balanced and comprehensive analysis of the company’s performance during the year.
Reflect the size and complexity of the business.
Be consistent with the rest of the annual report.
73
How should the strategic report address external economic factors?
It must:
Explain how general economic and market factors affect the company.
Describe steps taken to mitigate risks or leverage opportunities.
74
Should the strategic report have a future focus?
Yes, it should highlight how the current information impacts future periods and company strategy.
74
Can directors exclude certain information from the strategic report?
Yes, directors may exclude information if they believe that disclosure would be seriously prejudicial to the company's interests.
75
Who must approve the strategic report?
The board of directors must approve it.
76
Who must sign the strategic report?
It must be signed on behalf of the board by either:
A director, or
The company secretary (as per CA2006 s. 414D(1)).
77
What are the signing requirements for the directors’ report?
The copy of the directors’ report delivered to the Registrar of Companies must be signed.
The name of the person who signed it must appear under their signature (CA2006 ss. 445(5), 446(3), 447(3)).
77
What must be stated on every copy of the strategic report?
The name of the person who signed it (CA2006 s. 433).
78
Who is required to prepare a directors’ report?
Under CA2006 s. 415, all companies except micro-entities must prepare a directors’ report for each financial year.
78
What is the purpose of the directors’ report?
The directors' report is a mandatory report that provides an overview of the company’s financial position at the end of each financial year. It follows a prescribed format, making it easier to compare:
Performance over time (year-on-year).
Different companies within the same industry.
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Do listed companies have additional requirements?
Yes, listed companies must make additional disclosures under the Listing Rules and Governance Code.
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Who must approve and sign the directors’ report?
The report must be approved by the board of directors.
It must be signed on behalf of the board by a director or the company secretary (CA2006 s. 419(1)).
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What must be included in every signed copy of the directors’ report?
The name of the person who signed the report must be stated (CA2006 s. 433).
The copy delivered to the Registrar of Companies must also be signed, with the name of the signatory stated under their signature (CA2006 ss. 444A(3), 445(5), 446(3), 447(3)).
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Which companies are required to prepare a directors' remuneration report?
Under CA2006 s. 420, the directors of quoted companies are required to prepare a remuneration report for each financial year.
Quoted companies are those whose shares are listed on the Official List, a UK regulated market, the New York Stock Exchange (NYSE), or NASDAQ.
The report must be included in the company's annual accounts and made available to shareholders.
The purpose of the report is to ensure transparency regarding executive pay and align directors’ remuneration with shareholder interests.
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What are the three main categories of reporting requirements for directors’ remuneration?
Reporting requirements fall into three main categories:
(i) Companies Act Requirements
The key requirements are set out in regulation 11 and schedule 8 of the 2008 Regulations.
The Enterprise and Regulatory Reform Act 2013 introduced further provisions, particularly regarding payments to directors of quoted companies.
The Companies (Miscellaneous Reporting) Regulations 2018 (C(MR)R2018) further amended these rules.
C(MR)R2018 regulations 15–19 added additional disclosure requirements for financial periods starting on or after 1 January 2019.
(ii) Auditing Requirements
The 2008 Regulations specify which parts of the remuneration report must be audited.
The "auditable" part includes:
The amount of each director’s emoluments (salary, bonuses, and benefits).
Compensation payments (e.g., for loss of office).
Details of share options, long-term incentive schemes, and pensions.
Auditors must verify the accuracy of these disclosures.
(iii) Listing Rules & Governance Code Requirements
Although the Listing Rules (LR) do not require certain disclosures, they are typically included in the remuneration report.
Key requirements include:
Long-term incentive schemes (LR 9.4.3R).
Details of any waivers of directors' emoluments (LR 9.8.4(4)–(6)).
If a remuneration consultant was used, the consultant’s name and any connections to the company must be disclosed (Governance Code provision 35).
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What are the consequences of failing to prepare a directors’ remuneration report?
Failure to comply with CA2006 s. 420 constitutes a criminal offence, which can result in a fine.
The company and every director in default may be penalized.
This ensures that directors are held accountable for transparency in remuneration.
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What are the three main components of the directors’ remuneration report?
The report consists of:
Annual statement by the Chair of the Remuneration Committee
Annual report on remuneration (Implementation Report)
Remuneration policy (Remuneration Policy Report)
Each of these sections has specific requirements and is subject to different voting procedures.
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What disclosures must be included in the annual statement by the Chair of the Remuneration Committee?
The Chair’s statement must provide a clear summary of:
Major decisions on directors’ remuneration during the year.
Any discretion exercised by the committee in determining pay.
Substantial changes made to directors’ remuneration.
The context in which these decisions were made (2008 Regulations Sch. 8, para. 3).
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What are the shareholder voting requirements for the remuneration report?
Shareholder approval is required for two key sections:
(i) Implementation Report (Annual Report on Remuneration) – Advisory Vote
The Implementation Report is subject to an advisory (non-binding) vote at the AGM.
This means that even if shareholders reject the report, the directors are not legally required to change remuneration but are expected to consider shareholder feedback.
The vote must be held at the general meeting where the financial report is received (CA2006 s. 439).
(ii) Remuneration Policy – Binding Vote
The Remuneration Policy Report must be put to a binding shareholder vote at least once every three years (CA2006 s. 439A).
If shareholders reject the new proposed remuneration policy, the company must revise the policy after consulting with major shareholders and resubmit it for approval.
No payments can be made to directors that are not consistent with the approved policy.
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What information must be included in the Implementation Report (Annual Report on Remuneration)?
The Implementation Report is backward-looking and must disclose:
Actual amounts paid to each director in the financial year.
Performance-related pay details (e.g., bonuses, share options, long-term incentives).
Exit payments and any compensation for loss of office.
The pay ratio between directors and average employees.
Whether the remuneration policy operated as intended and, if not, what changes are needed.
Shareholder engagement and how concerns were addressed.
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What information must be included in the Remuneration Policy Report?
The Remuneration Policy Report is forward-looking and outlines:
Future pay structures and incentive plans.
How director pay aligns with company strategy and long-term success.
The maximum potential payments, including salaries, bonuses, and incentives.
Criteria for performance-based pay and the use of discretion.
Clarity, simplicity, risk, predictability, proportionality, and alignment to company culture (Governance Code provision 40).
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What best practice guidelines exist for directors’ remuneration?
Several investor representative bodies provide guidance on best practices, including:
Investment Association (IA) Guidelines on Responsible Investment Disclosure (2007)
IA Principles of Executive Remuneration (2017)
ABI/NAPF Best Practice on Executive Contracts and Severance (2008)
PIRC Shareholder Voting Guidelines (2017)
ISS UK & Ireland Proxy Voting Guidelines (2018)
These guidelines help companies align executive pay with shareholder expectations.
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What restrictions exist on directors’ remuneration and loss-of-office payments?
Under Chapter 4A of Part 10 of CA2006, no remuneration or loss-of-office payment can be made unless it is consistent with the approved remuneration policy.
When a new policy is approved, the previous policy ceases to have effect.
Any provisions carried over must be restated in the new policy to remain effective.
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What is the primary purpose of the statutory audit?
The primary purpose of the statutory audit is to provide an independent opinion to the members (shareholders) on:
Truth and fairness of the financial statements and certain sections of the narrative reports.
Compliance with the Companies Act (CA2006) in the preparation of financial accounts.
Reporting by exception on non-compliance with company law (e.g., where proper accounting records have not been kept).
The statutory audit helps shareholders assess directors' stewardship, ensuring fiduciary responsibilities are met.
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What happens if shareholders vote against the Implementation Report or Remuneration Policy?
If shareholders reject the Implementation Report, directors are expected to revise their approach, but no legal obligation exists.
If the Remuneration Policy is rejected, the company must consult major shareholders, revise the policy, and resubmit it for approval at the next AGM (CA2006 s. 439A(2)(a)).
Companies must also disclose when the last policy was approved and where it can be accessed (e.g., company website).
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What are the possible types of audit opinions?
An auditor’s opinion can be:
Unqualified (Clean) Report:
The financial statements are free from material misstatements.
The accounts provide a true and fair view.
Qualified Report:
The auditor identifies issues but they are not pervasive.
Examples include:
Disagreement with management on accounting policies.
Limitations on audit scope (e.g., missing records).
Adverse Opinion:
Severe misstatements make the financial statements misleading.
Disclaimer of Opinion:
The auditor cannot express an opinion due to a lack of sufficient audit evidence.
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Who benefits from the statutory audit, and what is the primary focus?
Primary beneficiaries: The audit is primarily conducted for the benefit of members (shareholders), as stated in CA2006.
Other stakeholders (e.g., customers, employees, suppliers, investors, the public) may rely on the audit opinion, but their interest is secondary to that of the shareholders.
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Are all companies required to have their financial accounts audited?
No, certain companies are exempt from audit if they qualify under CA2006. The exemptions include:
Small companies (CA2006 s. 477)
A company qualifies as small if it meets two out of three criteria:
Turnover: ≤ £10.2 million
Balance sheet total: ≤ £5.1 million
Number of employees: ≤ 50
Dormant companies (CA2006 s. 480)
Companies that have had no significant transactions during the financial year.
Qualifying subsidiaries (CA2006 s. 479A)
A subsidiary is exempt if its parent company guarantees its liabilities and it is included in the consolidated group accounts.
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What additional reports must auditors provide under CA2006?
Under CA2006 s. 496, the auditor must confirm whether:
The Strategic Report (if any) and the Directors' Report are consistent with the financial statements and have been prepared in line with legal requirements.
Any material misstatements exist in these reports.
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What are the mandatory contents of the auditor’s report?
The auditor’s report must include:
Identification of the company being audited.
Description of the financial statements under review, including the accounting period covered.
Reference to the financial reporting framework used, such as IFRS or UK GAAP.
Scope of the audit and confirmation of auditing standards followed (e.g., ISA – International Standards on Auditing).
A clear audit opinion, stating whether the financial statements:
Give a true and fair view.
Have been properly prepared in line with the financial reporting framework.
Comply with the requirements of the Companies Act (CA2006 s. 495).
Going concern statement – whether there are material uncertainties about the company's ability to continue operating.
Reference to any matters requiring emphasis, even if they do not result in a qualification.
The auditor’s place of establishment.
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What additional requirements apply to auditors of quoted companies?
Under CA2006 s. 497, auditors of quoted companies must:
\Verify the auditable sections of the Directors’ Remuneration Report.
Confirm whether the report has been properly prepared in accordance with CA2006.
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Who must sign the audit report?
Under CA2006 s. 503, the audit report must be signed by:
The auditor (if an individual).
If a firm is the auditor:
The senior statutory auditor must sign on behalf of the firm.
If it is a joint audit, both auditors must sign.
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What happens if an auditor finds that a company has not kept proper accounting records?
The auditor must report by exception to the shareholders if:
Proper accounting records have not been kept.
The accounts do not agree with the records.
They have not received all necessary information for the audit.
This is to ensure accountability and protect shareholders’ interests.
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What is the significance of an auditor’s report in assessing the company’s financial health?
The auditor’s report:
Provides assurance on the reliability of the financial statements.
Helps shareholders make informed decisions.
Highlights financial risks, including going concern issues.
Increases public and investor confidence in the company’s financial health.
The auditor’s report is a critical document that provides an independent opinion on a company's financial statements. It serves to protect shareholders, increase transparency, and ensure compliance with company law. The audit opinion (unqualified, qualified, adverse, or disclaimer) significantly impacts how the financial health of the company is perceived.
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What is the purpose of the audit committee report?
The purpose of the audit committee report is to provide the audit committee with detailed insights into the statutory audit, ensuring transparency, accountability, and compliance with regulations. The report helps the committee oversee financial reporting, risk management, and internal controls.
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What key requirements does Article 11 of the Audit Regulation introduce for the audit committee report?
Article 11 requires the auditor to include the following in the audit committee report:
Identification of the audit partner(s) responsible for the audit.
Disclosure of involvement of other statutory auditors or external experts, including:
Confirmation of their independence.
Scope and timing of the audit.
Audit methodology, including:
Which balance sheet items were directly verified.
Which items were tested through systems and compliance testing.
Any substantial variation in testing approach from previous audits.
Materiality levels applied, including:
Quantitative level of materiality.
Qualitative factors considered.
Specific materiality levels for transactions, balances, or disclosures.
Identification of significant deficiencies in:
Internal financial controls.
Accounting systems (for both individual entities and group accounts).
Significant matters involving non-compliance with:
Laws and regulations.
The company’s Articles of Association.
Significant difficulties encountered during the audit, including:
Disputes with management over accounting treatments.
Issues in obtaining sufficient and appropriate audit evidence.
Other significant audit matters relevant to the audit committee's oversight of financial reporting.
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What additional audit review requirements apply to listed companies before publishing their annual report?
Under Listing Rule (LR 9.8.10), auditors must review the following before the annual report is published:
Directors’ statement on going concern, ensuring it is accurate and properly supported.
Corporate governance statements, particularly those relating to:
Governance Code Principle M.
Governance Code Provisions 6, 24–27, 30, and 31.
Guidance Note 63.
Compliance with corporate governance disclosure rules under DTR (Disclosure and Transparency Rules):
DTR 7.2.5 and 7.2.6 – Corporate governance disclosures.
DTR 7.2.2, 7.2.3, and 7.2.7 – Ensuring proper corporate governance compliance.
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Why is the audit committee report important for corporate governance?
The audit committee report plays a critical role in:
Enhancing transparency in the audit process.
Ensuring effective oversight of financial reporting.
Identifying and mitigating risks related to financial control weaknesses.
Highlighting any legal or regulatory non-compliance.
Facilitating better communication between auditors, the audit committee, and company management.
The audit committee report is a detailed document required under Article 11 of the Audit Regulation. It ensures comprehensive oversight of the audit process by providing key audit findings, materiality levels, risk assessments, and compliance checks. Listed companies also have additional audit review requirements under Listing Rules (LR 9.8.10) and DTR rules to strengthen corporate governance.
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Why is the audit committee report important for shareholders?
Shareholders, both current and prospective, rely on the audit committee report to assess the quality of financial oversight and the effectiveness of audit and risk management processes. Analysts also use this information to evaluate the company’s governance and financial reliability.
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What is the purpose of the audit committee report?
The audit committee report provides shareholders and analysts with insights into the work carried out by the audit committee to ensure the integrity of the financial reporting process and the independence of the external audit.
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What key disclosures should be included in the audit committee report?
The annual report should include:
Significant issues considered by the audit committee.
Aspects of the audit that required particular attention.
Actions taken to verify and monitor the independence of the external auditors.
Details of the audit tender process, if relevant.
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What does the nomination committee report cover?
The nomination committee oversees the selection and appointment of directors to ensure the company has the right leadership. Since these appointments are typically event-driven, the report focuses on ad hoc events such as:
New director appointments during the year.
Succession planning for key leadership roles.
Selection criteria and process used in director appointments.
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Why is transparency important in the nomination committee report?
Transparent reporting builds shareholder confidence by demonstrating that director appointments are based on merit and aligned with the company’s strategic goals.
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What governance requirements apply to the remuneration committee?
The committee’s responsibilities are outlined in Governance Code provisions 27, 31, and 41, which require reporting on:
Executive director remuneration policies and performance metrics.
Pay ratios, pay gaps, and workforce engagement regarding executive pay.
Shareholder engagement on remuneration decisions.
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What are the filing deadlines for company accounts with the Registrar?
Companies must submit a signed copy of their accounts (whether full or abbreviated, audited or unaudited) to the Registrar of Companies within the following timeframes:
Private companies: Within nine months of the financial year-end (CA2006 s. 442).
Public companies: Within six months of the financial year-end (CA2006 s. 442).
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Is a separate remuneration committee report required?
No. The work of the remuneration committee is now typically included in the directors’ remuneration report, which outlines executive pay policies, performance-based incentives, and shareholder voting on remuneration matters.
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Committee Reports:
For listed companies, committee reports provide crucial insights into corporate governance. The audit committee ensures financial integrity, the nomination committee oversees board appointments, and the remuneration committee manages executive compensation. These reports enhance shareholder trust and transparency in governance practices.
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What are the filing provisions for financial years longer or shorter than 12 months?
If the first accounting period exceeds 12 months, the filing deadline is the later of:
Nine or six months after the first anniversary of incorporation.
Three months after the end of the accounting reference period.
If the accounting period is shortened, accounts must be filed within:
Nine or six months, as applicable.
Or at least three months after the company issues a formal notice under CA2006 s. 392 to shorten the accounting period.
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What are the financial statement publication requirements for listed companies?
Listed companies must publish their audited financial statements within four months of the year-end (DTR 4.1.3).
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Do unlimited companies need to file accounts?
No, unless the unlimited company is a subsidiary of a limited company. Otherwise, unlimited companies are exempt from filing financial statements with the Registrar (CA2006 s. 448).
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What is the European Single Electronic Format (ESEF), and why was it introduced?
The ESEF is a structured digital reporting format for financial statements of companies listed on UK or EU-regulated markets. It was introduced to improve financial transparency and comparability by requiring financial disclosures to be machine-readable.
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What is the primary reason for the development of integrated reporting?
Integrated reporting was developed in response to the realisation that annual financial reports alone do not provide a comprehensive view of a company’s long-term objectives, opportunities, and risks. Traditional financial statements focus narrowly on financial performance, whereas integrated reporting provides a broader explanation of how a company’s business model and strategy drive sustainable value creation.
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What is a preliminary statement of annual results?
A listed company may publish a preliminary statement of its annual results, which must be:
Audited and approved by the company’s auditors.
Released as soon as possible after director approval (LR 9.7A1).
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What are the half-yearly reporting requirements for listed companies?
Listed companies must publish a half-yearly financial report covering the first six months of the financial year.
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What are the key elements of integrated reporting?
Integrated reporting presents three key dimensions in a concise manner:
Corporate strategy, business model, and business environment
Historical financial performance in the context of strategic objectives
Challenges, risks, and opportunities affecting business performance and strategy
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How does ESEF work?
Financial statements must be digitally tagged using XHTML and iXBRL (similar to HMRC’s tax submission format).
The directors approve and sign-off on the financial statements before the ESEF version is created.
The new format is in addition to traditional printed accounts.
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What is the timeline for ESEF implementation?
The rollout was phased to ease burdens during the COVID-19 pandemic:
Date
January 2021 - Voluntary ESEF filing - Financial years starting on or after 1 January 2020.
2022 - Mandatory ESEF for basic financial information - Financial years starting on or after 1 January 2021 (Publication from January 2022).
2023 - Mandatory ESEF including notes to financial statements - Financial years starting on or after 1 January 2022 (Publication from January 2023).
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What are the deadlines for publishing half-yearly reports?
Reports must be made public as soon as possible, but no later than three months after the period-end.
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Is there a standard template for integrated reporting?
No, unlike traditional financial reporting, integrated reporting does not follow a fixed template. Instead, the International Integrated Reporting Council (IIRC) issued guiding principles and content elements to provide a structured framework.
103
Where are the detailed requirements for half-yearly financial reports outlined?
Chapter 4 of the Disclosure Guidance and Transparency Rules (DTR) outlines:
Preparation and contents of the half-yearly report.
Directors’ responsibilities in financial disclosure.
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How long must listed companies keep half-yearly reports available?
Listed companies must ensure reports remain publicly accessible for at least 10 years, typically via their website.
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How does integrated reporting benefit investors and fund managers?
Integrated reporting provides investors and fund managers with:
A better understanding of the company’s culture, philosophy, and value creation strategy.
Greater alignment between investors’ investment objectives and corporate strategies.
A holistic interpretation of financial performance in the context of long-term strategic goals.
This leads to reduced disconnect between investor expectations and corporate reporting, improving investment decision-making.
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Filing Requirements:
Filing requirements ensure financial transparency and regulatory compliance. Private and public companies must meet statutory deadlines when submitting accounts to the Registrar. Listed companies must publish full-year and half-year reports, adhering to FCA and ESEF standards to maintain shareholder confidence and regulatory compliance.
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What is the main objective of integrated reporting?
Integrated reporting aims to present a clear, cohesive, and concise narrative about:
Corporate strategy and how it aligns with long-term value creation.
Opportunities and risks faced by management in executing the strategy.
Financial and non-financial performance metrics that support the narrative.
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How does integrated reporting differ from traditional financial reporting?
Unlike traditional financial reporting, which primarily focuses on financial results and key performance indicators (KPIs), integrated reporting provides:
A holistic narrative about the company's business strategy, operations, and key risks.
A wider range of information linking financial performance to the business model, external environment, and stakeholder relationships.
Insights into the company’s culture, governance, and long-term value creation strategy.
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Integrated Reporting
Integrated reporting provides a holistic and forward-looking approach to corporate reporting, moving beyond financial results to cover strategy, risks, governance, and long-term value creation. This helps investors, analysts, and stakeholders gain a deeper understanding of a company’s performance and sustainability, ultimately leading to better alignment between corporate strategies and investor expectations.
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What are the five guiding principles of integrated reporting?
The five guiding principles ensure that integrated reports provide useful and relevant information to stakeholders:
Strategic focus – How the company will create and grow sustainable value.
Interconnections – Links between the business model, external factors, resources, and relationships.
Assessment of future prospects – Identifying uncertainties and long-term viability.
Stakeholder relationships – How the company interacts with key stakeholders (e.g., investors, customers, employees).
Concise, reliable, and material information – Ensuring relevance and accuracy to assess strategic goals.
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Why is ESG reporting becoming increasingly important?
ESG (Environmental, Social, and Governance) reporting is gaining importance due to:
Growing investor and stakeholder demand for transparency.
Increased regulatory requirements for sustainability disclosures.
Recognition of climate risks and sustainability as key business concerns.
The need for business models to demonstrate long-term resilience.
Governments and regulators are pushing for more structured and consistent ESG reporting to improve comparability and accountability.
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What are the six key content elements of an integrated report?
Integrated reports should include the following content elements:
Business overview and business model – A summary of the company’s purpose and operational framework.
Operating environment, risks, and opportunities – External and internal factors influencing strategy.
Strategic objectives and roadmap – Goals and steps to achieve them.
Governance and board oversight – Transparency in leadership and decision-making.
Review of performance – Both qualitative and quantitative measures tracking strategic progress.
Future prospects – Expected opportunities, challenges, and sustainability in the short, medium, and long term.
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What is the purpose of the BEIS consultation issued in March 2021?
The BEIS (Department for Business, Energy & Industrial Strategy) consultation seeks to enhance corporate reporting, audit quality, and director accountability. It builds upon a 2018 consultation and incorporates recommendations from three independent reviews:
Sir John Kingman’s Independent Review of the Financial Reporting Council (FRC).
Competition and Market Authority (CMA) Statutory Audit Services Market Study.
Sir Donald Brydon’s Independent Review of the Quality and Effectiveness of Audit.
The goal is to improve governance, accountability, and regulatory effectiveness in corporate reporting and audits.
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What new measures are proposed to hold directors accountable?
The consultation proposes new reporting and attestation requirements for directors of the largest companies. These include:
Internal controls – Stricter reporting on internal financial controls.
Dividend and capital maintenance decisions – Ensuring dividends are paid only when companies have sufficient reserves.
Resilience planning – Requiring directors to report on risk management and long-term viability.
Additionally, regulators will gain new investigative and enforcement powers to hold directors accountable for corporate reporting and audit failures.
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What are the key areas covered in the new proposals?
The proposals focus on four main stakeholder groups:
Directors – Strengthening accountability.
Auditors & Audit Firms – Improving audit quality and competition.
Shareholders – Enhancing engagement and oversight.
Audit Regulation – Creating a stronger regulatory framework.
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How will shareholders gain more control over audits?
The proposals introduce new mechanisms for shareholders to engage with auditors and hold directors accountable, including:
Audit and assurance policy – Companies must publish a report detailing their audit approach, with shareholders given an advisory vote on it.
Greater input in audit planning – Shareholders can suggest areas of focus for the auditor’s annual audit plan.
These changes aim to empower shareholders to play a more active role in corporate governance.
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What reforms are proposed for the audit profession?
The Government proposes:
Establishing a new, stand-alone audit profession, separate from accounting.
Extending audit responsibilities beyond financial statements to cover broader corporate reporting.
New regulations to reduce conflicts of interest by requiring audit firms to separate their audit and non-audit functions.
Increasing competition by creating opportunities for challenger audit firms to enter the market.
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What are the main concerns regarding auditors and audit firms?
Regulators have raised concerns about:
Lack of competition in the audit market for large companies.
Poor audit quality, with some firms failing to meet expected standards.
Discrepancy between the legal role of audits and stakeholder expectations
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What is the proposed solution to strengthen audit regulation?
The consultation proposes replacing the FRC with a new Audit, Reporting, and Governance Authority (ARGA), which will have:
Statutory powers to enforce corporate reporting duties.
A new statutory levy to fund operations, replacing the current voluntary levy.
Competition powers to improve the audit market.
Enhanced oversight of audit committees.
Authority to approve individuals and firms for auditing Public Interest Entities (PIEs).
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What weaknesses were identified in the FRC?
The FRC Review found that while the Financial Reporting Council (FRC) had strengths, it also had major weaknesses in:
Oversight of directors, auditors, and investors.
Enforcement of corporate governance rules.
Regulatory authority and independence.
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BEIS Consultation:
The BEIS consultation outlines a comprehensive reform package aimed at strengthening corporate governance, improving audit quality, increasing competition in the audit sector, and enhancing shareholder engagement. The creation of ARGA will give regulators greater enforcement powers, ensuring directors, auditors, and shareholders are held accountable for corporate reporting and governance.
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What was the purpose of the FRC’s Thematic Review of Climate Reporting (November 2020)?
The Financial Reporting Council (FRC) conducted the review to assess how well companies report on climate-related risks and their environmental impact.
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What are the three key aspects of climate reporting that directors should consider?
Directors must ensure that climate-related disclosures cover:
The impact of climate change on the company – How climate risks affect the company’s operations, assets, and strategy.
The company’s impact on the environment – How the company’s activities contribute to climate change and environmental sustainability.
Integration of environmental impacts in financial statements – ESG factors should not just be included in narrative reports but also reflected in financial statements where relevant.
These elements ensure that climate risks and sustainability are embedded in a company's strategic and financial decision-making.
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What ESG reporting standard has the FRC recommended for UK PIEs?
The FRC recommends that UK Public Interest Entities (PIEs) adopt the Sustainability Accounting Standards Board (SASB) disclosures.
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Why is SASB important for ESG reporting?
SASB provides:
Sector-specific ESG disclosures to address material sustainability risks.
A consistent framework for ESG reporting, improving comparability across companies.
Detailed metrics on environmental, social, and governance factors relevant to each industry.
By using SASB standards, companies can enhance the transparency of their ESG reporting, ensuring investors and stakeholders receive clear and relevant ESG data.
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What is the TCFD, and why is it important?
The Taskforce for Climate-Related Financial Disclosures (TCFD) provides a framework for companies to disclose climate-related risks and opportunities.
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When will TCFD reporting become mandatory?
TCFD reporting will be mandatory for most companies by 2025, with listed companies required to report for financial years beginning on or after 1 January 2021.
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What are the four key areas of TCFD reporting?
Companies must provide disclosures in the following areas:
Governance – Oversight of climate-related risks and responsibilities of the board.
Strategy – The impact of climate risks and opportunities on business strategy.
Risk Management – Processes for identifying, assessing, and managing climate-related risks.
Metrics & Targets – Measurement of climate-related performance and sustainability goals.
These disclosures ensure that investors and stakeholders can assess a company’s climate resilience and sustainability efforts.
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ESG Reporting:
ESG reporting is becoming a core part of corporate accountability, with regulators requiring companies to disclose climate risks and sustainability efforts.
The FRC’s thematic review emphasizes integrating climate-related financial disclosures into corporate reports.
SASB standards provide a structured way for UK PIEs to report ESG factors.
TCFD reporting is gradually becoming mandatory, ensuring companies align their governance, strategy, and financial reporting with climate-related risks.
Companies that proactively enhance their ESG disclosures will benefit from stronger investor confidence, regulatory compliance, and long-term business sustainability.
