Review of 2018 Annual Reports: Companies gear up for 2019 regulatory changes
27 September 2018
Companies in the FTSE are getting ahead of the game in advance of new corporate governance and reporting rules, finds new research by Deloitte.
Deloitte’s Annual Reports Insights, an analysis of 100 companies across the FTSE, found nearly one-third are already disclosing that their directors consider broader non-financial matters, such as employee interests and maintaining a reputation for high standards of business conduct, whilst still promoting corporate success for shareholders. The rules, effective for periods beginning on or after 1st January 2019, will require reporting by all large UK companies on section 172 of the Companies Act 2006 (s172) with a new corporate governance code also introducing complementary changes.
Almost all companies (97%) shared information on their impact on the community and environment. Other notable s172 matters companies indicated they had considered included acting fairly between different shareholders (66%), and a desire to maintain a good business conduct reputation (87%).
Veronica Poole, head of corporate reporting at Deloitte, said: “Whilst UK law already requires directors to consider broader non-financial matters, it is encouraging to see more companies acknowledging this, in advance of the requirement to report on it. There has been year-on-year progress and by far the biggest leap was in companies sharing more about how they have fostered business relationships with suppliers - 71% today, up from 38% last year. Considerations of employee interests was also up from 88% last year to 95% today. Both indicate a renewed focus of directors’ duties and acknowledgement of companies’ broader role within society.”
This year’s reports were also the first since the Non-Financial Reporting (NFR) Directive became effective, requiring companies to disclose policies on the environment, employees, social matters, human rights, anti-bribery and anti-corruption.
Poole continued: “Of the 100 companies surveyed, 70 fell within the scope of NFR changes. However, there remains some ambiguity on companies’ reporting in this space and whether they are providing all the required information”.
Looking ahead, IFRS 16 Leases become effective from 1st January 2019 requiring companies to bring operating leases on balance sheet.
“Whilst we’re yet to see any of the companies surveyed adopt the new leasing standard, some appeared well prepared”, said Poole. “Eight annual reports already quantified the anticipated impact of the new standard, with a further 36 providing some indication by cross-referencing existing operating lease commitments. The amount of information required for IFRS 16 will only increase for the next reporting season so it is encouraging to see some are already well advanced.”
Notes to editors
About the survey
The findings of the survey are based on 100 annual reports of UK companies. The sample includes 19 FTSE 100 companies, 38 FTSE 250 companies, and 43 companies outside the FTSE 350 and reports analysed for the financial years ended between 30 September 2017 and 31 March 2018.
About Section 172
Section 172 of the Companies Act 2006 (s172) currently requires directors to consider broader non-financial matters, such as employee interests and the impact on the community and environment, whilst promoting the success of the company for its shareholders. The Companies (Miscellaneous reporting) Regulations 2018 will require all large UK companies to describe in their annual reports how their directors have had regard to the matters set out in s172 for periods beginning on or after 1 January 2019.
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