• Annual Review of Corporate Reporting 2021/22

Annual Review of Corporate Reporting 2021/22

21 December 2022

Original content provided by BDO United Kingdom

The Financial Reporting Council (FRC) has issued its Annual Review of Corporate Reporting. The FRC works to help ensure companies provide high-quality decision-useful information for investors and other stakeholders and that accounts comply with financial and narrative reporting requirements.

This is of particular importance in the current times of economic uncertainty. To this end, the Corporate Reporting Review team (CRR) of the FRC has published the following documents:

  • Annual Review of Corporate Reporting for 2021/22. A full report of the CRR’s findings, including their top ten areas of challenge (including practical advice and examples of improvements), an overview of thematic reviews performed in the year, and key disclosure expectations for 2022/23.
  • Corporate Reporting Highlights. A summary of the key issues relevant to reporting in uncertain times, key disclosure expectations for the next year and a high-level summary of reminders on the top ten areas of challenge the CRR raised this year. This is a useful overview document for those that don’t require the detail of the full Annual Review.
  • Key matters for 2022/23 reports and accounts. This sets out an overview of the FRC’s recent publications and their key messages, and the year-end developments in financial reporting and climate-related disclosures.

The FRC has also published a report on ‘What Makes a Good Annual Report and Accounts’. This sets out the attributes for a high-quality Annual Report and Accounts and also includes a range of good practice examples.

Reporting in uncertain times

With an environment of heightened uncertainty caused by matters such as the Covid-19 pandemic and the Russian invasion of Ukraine, section 5 of the Annual Review addresses how businesses will need to be agile and continually reassess evolving risks which are reflected in their strategy and reporting.

It sets out what companies should consider for each stage of narrative reporting and the FRC’s expectations concerning these disclosures. The general theme of these expectations is to be clear, concise and understandable, include information relevant to users to understand the nature, scope and impact of risks and estimates, and be company-specific.

Areas of CRR challenge

To make the Annual Review as helpful as possible, within each of their ‘top ten areas of challenge’ findings, the FRC clearly sets out areas of improvement, a number of case studies where they explain what has been done well, and specific recommendations of what companies should be asking themselves when drafting disclosures.

The FRC were pleased to note that the quality of corporate reporting among the FTSE 350 has been maintained despite the challenging environment. They saw reporting improvements in relation to certain disclosure areas such as revenue, and a marked improvement in disclosure of significant judgements and estimates, which is a topic historically high up the list – but this does not mean that companies shouldn’t still strive to make further improvements.

However, the scope for improvement remains in areas such as financial instruments and deferred tax, as well as a disappointing number of errors in cash flow statements.

Top three areas of CRR challenge - findings

Cash flow statements

The FRC particularly noted their disappointment that cash flow statements are number one this year, despite their 2020 cash flow and liquidity disclosures thematic.

There was an overall increase in prior year restatements to 27 (2020/21: 14) as a result of the FRC’s queries, with over half of these relating to the cash flow statement, more than twice as many as last year. These were mostly classification errors and are set out on page 61 of the Annual Review.

Cash and cash flow statements have been identified as an area of focus for audit quality inspections for the 2022/23 review cycle to help drive improvements. The Appendix to the FRC’s cash flow and liquidity disclosures thematic sets out the consistency checks performed by the FRC on cash flow statements. Preparers of cash flow statements may find it helpful to refer to this Appendix.

Financial instruments

The FRC asked more questions in relation to the topic of financial instruments this year. The FRC noted that, in many instances, the queries could have been avoided if companies’ accounting policies and disclosures were clearer.

Key recommendations for improving the clarity and helpfulness to users of these disclosures include:

  • Accounting policies should be provided for material financing (including factoring and reverse factoring) and hedging arrangements;
  • ECL provision disclosures should be specific and complete in regard to inputs, assumptions and estimation techniques; and
  • Liquidity disclosures should clearly set out relevant information, especially in relation to the terms and conditions of financing arrangements and covenants.

Income taxes

The FRC also asked more questions in relation to the topic of income taxes this year. These included questions about:

  • The nature of the evidence to support the recoverability of deferred tax assets where companies had a recent history of losses;
  • The recognition of deferred tax assets and liabilities on share-based payments and hedging arrangements; and
  • The nature of reconciling items in the effective tax rate reconciliation and the clarity of explanations in relation to the inclusion or exclusion of certain items.

Thematic reviews

The Annual Review sets out the thematic reviews performed in the year, with the findings from these incorporated into the main review findings. There is also a one-page summary for each of the thematic reviews, although more detail can be found on each of these in the full thematic review publications:

  • Discount rates
  • TCFD disclosures and climate in the financial statements
  • Deferred tax assets
  • Business combinations
  • Earnings per share, and
  • Judgements and estimates.

Forthcoming reporting season

The Annual Review identifies the priority sectors for 2022/23 as follows:

  • Travel, hospitality and leisure
  • Retail
  • Construction materials
  • Gas, water and multi-utilities


If you have any questions, please contact Nigel Harra, Laura Jackson, Breandan Lundy or Sam Howard.