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Legislative and other developments - Coggle Diagram
Legislative and other developments
Integrated reporting
Overview
Over recent years there has been a realisation that the proper recognition of the opportunities and risks facing directors in the achievement of the businesses long term objectives requires much better and fuller explanation than can be achieved through the generally narrow focus of the annual report and accounts on financial results, measures and performance indicators
Integrated reporting provides a framework for the reporting by companies on their business model and operational processes and priorities
Purpose
The focus of integrated reporting is to provide a clear, cohesive and concise narrative of the corporate strategy, the significant key practical opportunities and risks that are being faced daily by management in pursuing that strategy and the financial measures and metrics to support that narrative
Integrated reporting provides an opportunity for the directors to demonstrate clearly the fullest possible overview of the business's value creation strategy, the impact of current and anticipated macro and micro economic events, providing details of the measures in place, being put in place or available to be put in place to preserve or grow value
Good integrated reporting will allow investors to gain better and easier insight into the company's culture and philosophy to create and preserve investor value. This better understanding in turn should lead to a reduction in the disconnect between investors stated investment objectives and the corporate strategies and objectives of the companies they invest in together with a better alignment of the interpretation of the financial results with achievement of the long term business strategy
Implementation
Needs to deliver a wider range of information than the historic financial statements, in a concise manner that identifies the dependencies between
Corporate strategy, business mode and business environment
Historic financial performance presented by reference to the business strategy, strategic objectives for those years collectively and independently and the business environment
Challenges, risks and opportunities encountered during those periods, the effect these had on performance and strategic changes resulting from those challenges and opprotunitites
Five principles
Strategic focus and how that will create and grow sustainable value
Inter connection between business model, external factors, resources and relationships
Assessment of future prospects and uncertainties
Relationships with key stakeholders
Concise, reliable, material information to asses prospect of achieving the strategic goals
Six content elements
Business overview and business model
Operating environment, risks and opportuntities
Strategic objectives and road map achievment
Governance structure and oversight, board disclosures, remuneration
Review of performance, qualitative and quantitative measures to achieve strategic objectives
Future prospects, opportunities and challenges to be faced to achieve corporate strategy in the short, medium and long term
BEIS
New measures are proposed in relation to directors, auditors and audit firms, shareholders and audit regulation
To improve the ability of regulators to hold negligent directors to account, the proposals include new reporting and attestation requirements covering internal controls, dividend and capital maintenance decisions and resilience planning, designed to sharpen directors accountability in these key management areas within the largest companies for breaches of their duties in relation to corporate reporting and audit
Audits have been a concern for the regulators for some years due to the lack of competition for larger company auditors and the sub standard work being found by the existing regulator. There is also a widening gap between the role of the audit as set out in current legislation and the expecttions of shareholders and other stakeholders
These proposals include the creation of a new stand alone audit profession, underpinned by a common purpose and principles and with a reach across all forms of coproate reporting, not just the financial statements.
The government is proposing new regulatory measures to increase competition and reduce the potential for conflicts of interest by providing new opportunities for challenger audit firms and new requirements for audit firms to separate their audit and non audit practices
Shareholders as owners of the business have a vested interest in ensuring their companies are run properly by the directors. There are deficiencies in the processes available to shareholders to hold directors to account or to engage with auditors. The proposals include provisions for companies to be required to set out their approach to audit through publication of an audit and issuance policy on which there would be an advisory shareholder vote
Shareholders would also have a formal opportunity to propose to the audit commitee areas of emphasis to be considered within the auditors annual plan
The FRC Review identified strengths but also significant weaknesses in the FRC's effectiveness in overseeing and holding directors, auditors and investors to account for their respective roles within the regulatory and corporate governance framework.
Although the FRC has taken signficiant steps to address some of these weakness, legislation is also required to create the proposed Audit, Reporting and Governance Authority and provide it with the necessary tools it requires. It is proposed that the new regulatory have new statutory objectives and functions along with a new statutory levy
ESG Reporting
As each year passes more and more importance is given to the quality and transparency of companies ESG reporting and the sustainability of the companies business models
The there key aspects of the review for directors to consider when drafting their reports are
The impact of climate change on the company
The impact of the company's activities on the environment
Including enivornementla impacts in the financial statements and not just in the narrative reporting and disclosures
In addition to the review, the FRC also recommended that UK PIEs should report against the Sustainability Accounting Standards Board disclosures, these provide sector specific dislcosures intended to assist companies in reporting material ESG factors in a consistent way
The Taskforce for Climate Related Financial Disclosures are expected to be mandatory across most companies by 2025 with listed companies being the first to report for 2021. Reporting will cover the four key areas of governance, strategy, risk management and metrics & targets