UK’s Financial Reporting Council Urges Clearer Disclosures from Smaller Listed Companies

Key Takeaways

• FRC Review Scope: The FRC examined annual reports from 20 smaller listed companies outside the FTSE 350, identifying persistent gaps in reporting quality compared with larger firms.
• Higher Intervention Rate: Smaller listed companies continue to receive more substantive FRC letters and more restatements of primary financial statements, although few restatements affect consolidated profit.
• Focus Areas: The review highlights recurring issues in revenue recognition, cash flow statement classification, impairment disclosures, and financial instrument reporting.
• Enquiry Triggers: The publication includes hypothetical examples showing common triggers for FRC enquiries and contrasts between strong and weak disclosures.
• Clarity and Conciseness: The FRC stresses that clearer, more concise reporting, rather than more volume, is essential for improving transparency and meeting investor expectations.

Deep Dive

The UK’s Financial Reporting Council has issued a new thematic review highlighting persistent weaknesses in the corporate reporting of smaller listed companies and offering practical guidance aimed at narrowing the quality gap with larger firms.

The review looks at annual reports from 20 companies listed outside the FTSE 350, split between the Main Market and AIM, with year-ends between September 2024 and April 2025 and market capitalizations ranging from roughly £100 million to £500 million. The FRC excluded financial services firms and focused on companies operating under IFRS across a mix of industrial goods and services, technology, basic resources, and other sectors.

The regulator said the findings reflect long-standing trends: while its overall write-rate has declined in recent years, smaller listed companies continue to receive a disproportionate share of substantive letters following FRC reviews. They are also more likely to make restatements to their primary financial statements, though few have affected consolidated profit. The FRC said it continues to observe lower reporting quality among smaller companies, particularly in presentation and disclosure.

Four Areas Where Smaller Companies Most Often Fall Short

The thematic review concentrates on areas that routinely draw investor scrutiny and frequently lead to FRC enquiries:

• Revenue recognition: Companies should ensure accounting policies fully reflect material revenue streams and align with their business models. The FRC points to ongoing gaps in explanations around performance obligations, transaction pricing, agent-versus-principal assessments, and related judgements.
• Cash flow statements: Misclassifications between operating, investing, and financing activities remain one of the most common issues identified. The FRC stresses the need for clearer descriptions of transactions and better consistency between cash flow disclosures and other parts of the annual report. The review also outlines typical cross-checks used during FRC examinations.
• Impairment of non-financial assets: The regulator highlights the importance of transparent impairment disclosures, noting that high-quality reporting requires clear explanations of judgements, assumptions, and sensitivity analysis, all consistent with the broader narrative about the company’s outlook.
• Financial instruments: The review notes continued room for improvement in tailoring accounting policies for financial instruments and providing transparency around classification, measurement, and risk exposures, information investors rely on to assess liquidity and longer-term viability.

Across these topics, the FRC urges companies to prioritize clarity and conciseness. The regulator notes that improved reporting does not necessarily require more extensive disclosures but rather more meaningful and better-structured ones.

How the Review Differs From Past Publications

Unlike previous thematic reviews that primarily showcased examples of good practice, this year’s publication places greater emphasis on the triggers that prompt the FRC to open enquiries. To illustrate these points, it includes hypothetical disclosure examples, based on real casework, that contrast informative reporting with weaker or less complete disclosures. These examples are intentionally summarized and not intended as full templates.

While the publication is aimed mainly at smaller listed companies with limited reporting resources, the FRC says it may also be useful to auditors, audit committees, and investors.

Auditors may use the insights to better understand how the FRC evaluates the relevance and reliability of disclosures. Audit committees can draw on the examples to challenge management on accounting policies, estimates, and judgements. Investors, meanwhile, may use the review to engage companies on the transparency and forward-looking aspects of their reporting.

The FRC adds that its approach to reviewing smaller listed companies remains proportionate and considers materiality on a case-by-case basis, balancing the need to uphold reporting standards with the aim of avoiding disproportionate regulatory impact.

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