At last, guidance you might be able to follow - FutureValue 800-2312-323
At last, guidance you might be able to follow
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Last month saw the long-awaited arrival of full ‘Guidance on the Strategic Report’. Originally scheduled for ‘early 2014’ the FRC had put back publication of this full Guidance – presumably on account of the volume of responses and extent of those responses it had received to its earlier 2013 consultation on the Exposure Draft. If indeed the FRC had been inundated by an unexpectedly large number of expansive responses, it would have come as no surprise to us at FutureValue or, we suspect, to many of the other respondents, given the sometimes ambiguous content and ‘curate’s egg’ nature of the August 2013 consultation ‘Exposure Draft’. Certainly, at FutureValue, some aspects of that draft Guidance challenged our perception of best practice present in the strategic value analysis technique that we employ in our day-to-day evaluation of annual reports.

So, when the FRC finally announced its publication of the final ‘Guidance on the Strategic Report’ at the beginning of June, it was with a degree of trepidation that I finally worked up the courage to review this final Guidance document. In fact, I had to read it closely twice to be sure that the great sense of relief I experienced on the first reading was not misplaced. To be sure, I even pinched myself the second time through to make sure I wasn’t dreaming. In place of the occasional imprecision, ambiguity and vagueness of the consultation Exposure Draft was now a more authoritative, coherent and certain final Guidance. Gone was the woolliness along with most, if not quite all, of the ambiguities.

The FRC asserts this newfound confidence nowhere more clearly than in stating the purpose of the annual report, and of the strategic report within the annual report.  Shareholders are emphatically the intended audience and the purpose of the annual report is to provide shareholders “ … with relevant information that is useful for making resource allocation decisions …”. “Information in the strategic report [ … ] should enable the annual report to be a more cohesive document” and “ … should provide information about the business and its development, performance or position [ … ] which might be relevant to the shareholders’ evaluation of past results and assessment of future prospects.” Cohesiveness is one of the watchwords here. The Guidance continues in this same vein, addressing more assertively the issues of materiality and communication principles as well as defining more rigorously the content elements of the strategic report.

So, has the whole guidance exercise been worthwhile? We can say that, despite the questionable Exposure Draft, the standard of narrative reporting among many of the better corporate reporters in this first year of their strategic reports has already been noticeably more effective. From this we conclude that the more authoritative, coherent and certain final Guidance should, like the rising tide, raise all corporate reporting boats and not just a few. What is particularly exciting for us at FutureValue is that the final Guidance is undeniably an implicit endorsement of the comparative strategic value technique that we have been applying assiduously now for eight years. All in all it has left us with a considerably more positive feeling about the FRC. If you haven’t yet downloaded a copy of the Guidance from the FRC website, you will find it here.