FRC Identifies Gaps in Financial Disclosures & Intangible Value Reporting

Key Takeaways

• No Material IFRS 9 Issues Identified: The FRC found no material issues with the application of IFRS 9 in its review of 20 listed corporates reporting under UK-adopted IFRS Accounting Standards.
• Financial Disclosures Need Improvement: The regulator identified opportunities to strengthen IFRS 7 disclosures concerning hedge accounting, expected credit losses and debt factoring arrangements.
• Greater Attention to Intangible Value Drivers: A separate review of 10 company reports encouraged clearer explanations of how technology, knowledge and other intangible resources support business models, strategy and future performance.
• Stronger Connections Across Annual Reports: The FRC urged companies to improve consistency between strategic reports and financial statements and apply materiality effectively to eliminate unnecessary disclosures.

Deep Dive

The UK's Financial Reporting Council (FRC) has found no material issues with how 20 listed companies applied financial instruments accounting requirements, although its examination of their annual reports identified weaknesses in the clarity of certain financial disclosures.

The findings were published on October 14 as part of two thematic reviews examining financial instruments reporting and the disclosure of intangible value drivers. The regulator reviewed the reports and accounts of 30 companies across the two exercises, identifying examples of good practice and areas where companies could provide more useful information about their operations and financial performance.

Financial instruments were the second most frequently raised topic in the FRC's 2025/26 Annual Review of Corporate Reporting. Their treatment can materially affect reported performance, financial position and future cash flows, making the accompanying disclosures an important part of understanding a company's financial circumstances.

The FRC's financial instruments review examined 20 listed corporates reporting under UK-adopted IFRS Accounting Standards. The work follows earlier reviews of IFRS 9 that concentrated largely on banks.

Although the regulator found no material issues concerning the application of IFRS 9, it identified opportunities to improve disclosures under IFRS 7, particularly those relating to hedge accounting, expected credit losses and debt factoring arrangements.

These disclosures help readers understand how companies manage financial exposures, assess potential credit losses and account for arrangements involving their receivables. The FRC's findings indicate that companies could explain these matters more clearly, even where their underlying accounting treatment does not raise material concerns.

The regulator is encouraging preparers to take a principles-based approach, concentrating on information that reflects their particular circumstances and gives readers a clearer understanding of the financial instruments involved.

It also emphasized the importance of applying materiality effectively. Removing unnecessary detail, where appropriate, can make significant information easier to identify and improve the usefulness of financial statements.

Intangible Value Drivers Under Review

The FRC's second thematic review examined how companies explain the intangible resources and capabilities that contribute to their business models and future performance. The regulator selected the reports and accounts of 10 companies across a range of sectors, reflecting the growing importance of technology, knowledge and other intangible factors to corporate operations.

The review encourages companies to explain more fully how their principal intangible value drivers support their business strategy and prospects. Such information can help readers understand aspects of a company's operations that may not be apparent from its financial statements alone.

The FRC also called for closer connections between strategic reports and financial statements. Companies are encouraged to consider whether information presented across their annual reports is consistent and whether relevant relationships between business strategy and financial reporting are sufficiently clear.

The recommendations leave companies room to determine which intangible drivers are most relevant to their circumstances. The regulator's emphasis is on providing meaningful explanations of the resources that support the business, with appropriate connections to other information in the annual report.

Both reviews form part of the FRC's work to improve corporate reporting quality. They provide companies with practical examples of effective disclosures and identify areas where existing reporting could be made clearer without introducing new accounting requirements.

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