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Financial Reporting – Strategic Report – Part II

In the first part of this article we wrote about the statutory underpinnings of the new Strategic Report, as part of the enhanced disclosure regime promoted by international and national financial reporting standard setters.

Today we focus on the content and structure of the Strategic Report.

We start by emphasising that the standard setters and regulator do not want a formulaic report, but being realists we believe that is exactly what the outcome is going to be. The basic idea behind the report is to better inform investors of the business model and strategic intent of the business, together with how this is measured.  In other words, where would accountability and responsibility for failure or a the very least, the key risks and uncertainties in the business or wider environment lie.

responsibility

What is the purpose of the strategic report?

 

The basic intent is to bring together, in a cohesive and clear manner the most relevant information investors in a business would require – a ‘joined up story’ with the rest of the Financial Statements.  As per the Deloitte practical guide it “provides context to the financial statements, an analysis of past performance and insight into the main objectives, strategies, risks – and how these might impact future performance“.

With that as the background, below follows a basic outline if what needs to be covered in the Strategic Report:
[Source: Deloitte:

    • Objectives & implemented strategy
    • Measured against KPIs
    • Annual review and future (options)
    • Principle Risks and uncertainties faced
  • Further considerations
    • Employees
    • Environmental & CO2
    • Human Rights
    • Social & community issues

     

With the basic framework in place, the CEO or CFO should be able to ‘hang a concise, clear and current story around the business, direction, performance and risks that constantly buffet organisations in the turbulent landscape of competitive market forces.
Business Model Canvas Poster download (http://...

Business Model Canvas Poster download (http://www.businessmodelalchemist.com/tools) (Photo credit: Wikipedia)

Now that confidence is returning and the market and investors have a better, clearer and concise understanding of the direction and calculated risks and unavoidable uncertainties any organisation faces, then better outcomes, good, indifferent or bad can be expected.

Only time will tell and we will return to this topic area once the first statistically significant sets of financial statements containing the Strategic Report has been published, in order to evaluate whether the overall objective has been achieved.

©2014 – 3resource

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Financial Reporting – Strategic Report – Part I

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In the excitement of an economic outlook rising like the incoming tide during the last quarter of 2013, together with the ‘silly season’ most of us would probably have missed Statutory Instrument No. 1970 – The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, and off course you would be forgiven for it.  This particular statutory instrument made the duty to provide a Strategic Report a part of UK financial reporting legislation.

To most us the update to the Companies Act 2006, Part 15 – Accounts and Reports, will not have any impact, if our our daily task is that of preparing annual statutory financial accounts for approval by the board of directors of a UK incorporated company.  This is because under section 414B of the Act, an exemption applies as follows:

414B Strategic report: small companies exemption
A company is entitled to small companies exemption
in relation to the strategic report for a financial year if—
(a) it is entitled to prepare accounts for the year
in accordance with the small companies regime, or
(b) it would be so entitled but for being or having
been a member of an ineligible group.
Financial Reporting (AICPA)
Therefore, if you prepare annual accounts based on the small companies exemption in section 477, namely:
477 Small companies: conditions for exemption from audit
(1) A company that meets the following conditions in respect of
a financial year is exempt from the requirements of this Act relating to the audit of accounts for that year.
(2) The conditions are—
(a) that the company qualifies as a small company in relation to that year,
(b) that its turnover in that year is not more than £5.6 million, and
(c) that its balance sheet total for that year is not more than £2.8 million;
then you do not have to be too concerned about the requirement to include a Strategic Report as part of the Annual Accounts ending on or after 30 September 2013.
If the answer is that you actually qualify, under the Act to include a Strategic Report, then in part II of this series of articles, we will set out the more detailed minimum requirements you will have to include, in order to stay compliant with the Financial Reporting requirements, as set out in the Companies Act 2006.
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©2014 – 3resource
* Quotes and references (sections) to the Companies Act 2006 available from Companies House
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