Strategy & Operations » Governance » The Rules: FRS 102 presents an opportunity to rethink the way information is presented in financial statements

The Rules: FRS 102 presents an opportunity to rethink the way information is presented in financial statements

With the implementation of FRS 102, now the time to revise and revamp your financial statements, posits Mary Starr, manager at Grant Thornton UK

With the implementation of FRS 102, now the time to revise and revamp your financial statements, posits Mary Starr, manager at Grant Thornton UK


THE implementation of a new UK GAAP offers an opportunity to rethink the way in which information is presented in financial statements. Generally, the statements consist of four key parts – the ‘front end’, or the narrative reporting section which tells the company’s performance story for the year; the primary statements; the accounting policies and the notes to the accounts. The accounting policies and notes will already require a full update to reflect the changes to new UK GAAP, so taking the opportunity to review the whole document makes sense. Whilst there are clearly ‘rules’ in terms of what needs to be included and where, there is still flexibility to personalise, simplify and ensure that the key messages and important information stands out for your stakeholders.

Narrative reporting

While some of the front end is required by legislation, it doesn’t need to be boring boiler-plate language and there may be an opportunity to use imagery to tell a more compelling story. A highlights page can be a useful way to set the scene – outlining key financial changes, non-financial information about key activities and a signpost to more detail contained within the statements. A narrative statement from the CEO, chairman or similar, also helps to personalise the accounts.

A strategic report, required by many companies, should provide a fair review of the company’s business and a description of the principal risks and uncertainties facing the company.  It’s not just about compliance but also about communication.  Consider whether the report gives a clear explanation of the business model, its strategy, the key issues, risks and uncertainties affecting the business. Is jargon explained and is boiler-plate language avoided?

The principal risks and uncertainties disclosed are generally those most regularly discussed by the Board and should be specific to the company, rather than of generic interest. It should also be updated for changes in the company’s business model or relevant changes in the economic environment. For instance, the current Brexit debate could be an area of risk for a business with strong EU links.

Key performance indicators mean factors by reference to which the development, performance or position of the company’s business can be measured effectively. Again a long list is unhelpful, but discussion of its relevance in the context of the business  will help readers understand its significance.

Accounting policies

Accounting policies will need to be updated for changes arising from  FRS 102; but as part of this, why not consider whether policies are only given for material items as well as the order in which they are presented.

The aim of accounting policy disclosure is to help readers understand your financial statements. They need to be clear and focus on company specific disclosures and transactions; and not simply repeat accounting standards.

Disclosure of policies should only be given for significant transactions and balances. For example if there are no provisions recognised in the financial statements, then don’t include a policy. The order in which policies are given is also worth considering, starting with those policies that relate to the most significant  items or require the most judgement. Also, don’t overlook the new FRS 102 requirement to disclose significant  judgements and key sources of estimation uncertainty – for example a discussion of  judgements relating to revenue recognition in a more complex business, impairment considerations and the recognition of deferred tax assets.

Notes to the financial statements

FRS 102 requires that your notes are presented in a ‘systematic manner’, as far as practicable, and contains some unfamiliar and different disclosure requirements. However, there may be a further opportunity to rethink how your notes are presented and whether there is a better way of organising the order or presentation. One way could be to group notes of similar categories. For example, unrecognised items such as commitments and contingencies, post balance sheet events and operating leases could be grouped together as could performance related notes such as those relating to revenue, expenses, earnings per share and income tax.

Alternatively the notes relating to the most critical items could be placed in a more prominent position. For example a major acquisition giving rise to significant goodwill is likely to be more interesting to a reader than a note regarding inventory.

Don’t leave it until the last minute

Finally, the changes to presentation and disclosure under FRS 102 will require time and preparation, as will the consideration of general improvements to the format and content of the financial statements.

For companies that still have some time before they need to prepare their first set of financial statements under FRS 102, a practical way of dealing with this process might be to produce shadow comparatives in advance. This can help to iron out any issues early, and provide the opportunity to experiment with different formats and content. For other companies where the transition process is already well underway, there will be plenty of time to think ahead for the preparation of next year’s financial statements.

Mary Starr, manager at Grant Thornton UK

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