On 6 April 2011, the Financial Reporting Council (FRC) published a discussion paper on combating "clutter" in annual reports. The paper follows an earlier FRC discussion paper, "Louder than Words: Principles and actions for making corporate reports less complex and more relevant", which was published in June 2009. Both discussion papers highlighted concerns that "clutter" – which the FRC defines as immaterial disclosures that inhibit the ability to identify and understand the relevant information in annual reports and / or explanatory information that remains unchanged from year to year – undermines annual reports and obscures relevant information.
The most recent discussion paper highlights three actions which the FRC considers necessary to remove some of the barriers to reducing clutter in annual reports. These are:
- Encouraging debate among FRC bodies, regulators, users and preparers of annual reports on the way in which considerations of materiality should be applied (in particular, to financial statement disclosures);
- Investigating the possibilities and benefits of separating explanatory information from the printed annual report. While the paper acknowledges that removing such information from the annual report completely and, for example, publishing it on a website, will require regulatory change, it suggests that in the meantime such information could be included in an appendix to the annual report; and
- Liaising with investors, regulators and other stakeholders regarding their information requests to ensure that legitimate requests can be met, without adding further unnecessary clutter.
Sample annual report pages, setting out style disclosures on governance, accounting policies and share-based payments (areas which the FRC consider commonly include "clutter") are included in the paper to illustrate how these areas could be streamlined, together with checklists for use by preparers when planning the annual report process.
The FRC acknowledges that changes in market practice will not be achieved quickly but are keen to see long term changes by regulators, reviewers, users and preparers of annual reports which will ultimately reduce time, energy and the cost of preparing unnecessary disclosures, whilst at the same time increasing clarity for investors.
The FRC is seeking comments on the discussion paper by 30 September 2011 and plans to meet with interested parties in Autumn 2011.
View the FRC Discussion Paper Cutting Clutter: Combating clutter in annual reports (52 page pdf).