UK government consults on modernising corporate reporting

The Department for Business, Innovation, Science and Trade has published a consultation on modernising the UK corporate reporting framework system. It sets out wide-ranging proposals to simplify and modernise the framework, guided by five core principles including: clarity of purpose; flexibility and trust; simplicity and coherence; proportionality; and fitness for the future.

Key proposals include:

• Clarifying that annual reports and accounts are documents primarily intended for investors and creditors.
• Simplifying which companies are required to report different types of information. The government wishes to take a fresh look at the Companies Act 2006 to rationalise the scopes, thresholds and exemptions which determine what disclosures a company must make and is considering how thresholds and exemptions might be changed to take companies out of requirements.
• Creating a lighter regulatory load for small and medium-sized enterprises (SMEs), including allowing certain medium-sized companies to qualify for an audit exemption. The government is consulting on creating a reporting framework for SMEs which would allow certain medium-sized companies to claim a wider package of exemptions, including extending the small company audit exemption to certain medium-sized companies.
• Testing the merits of non-financial reporting requirements for private companies, including the possible creation of a new "very large" company threshold that could be applied to non-financial reporting requirements.
• Streamlining the UK's financial reporting framework by moving detailed requirements out of the Companies Act 2006 and into accounting standards, reducing available standards to four main standards, replacing the "true and fair presumption" for micro-entities with an obligation to prepare accounts that comply with the micro-entities standard, and creating a new accounting standard for not-for-profit entities.
• Replacing the complex rules on distributable profits and capital maintenance with a solvency-based regime for determining the legality of dividend payments.
• Simplifying and streamlining the strategic report requirements by removing prescriptive obligations and enabling companies to explain performance, strategy and governance in a way that reflects the size and nature of their business. The government is also considering which companies should be required to comply with future strategic reporting requirements.
• Simplifying remuneration and corporate governance reporting.
• Embracing digital communications, including making electronic communication with shareholders the default option.
• Introducing a central government "Reporting Gateway" function to examine the merits of future reporting proposals, ensuring they are coherent, proportionate and cost-effective.

The deadline for responses is 30 November. The government aims to publish its consultation response within six months of the consultation closing.

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