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Preparation is key

29 August 2019 by Ben Harber and Shaun Zulafqar

Preparation is key

A joint publication from the FRC and the ICAEW recently provided practical suggestions for audit committees and boards of smaller listed and AIM quoted companies seeking to deliver high quality financial and risk reporting

Building on the themes from its 2015 discussion paper, the Financial Reporting Council (FRC) noted the general perception amongst smaller listed and AIM quoted companies is that their annual reports were not read by investors and as such, smaller quoted companies failed to prioritise or dedicate sufficient time to producing high quality annual reports. Rather than being seen as opportunities to communicate and engage with shareholders and potential investors, reports are often treated as a tick box exercise with most companies only complying in areas where they are required to do so.

A Clear Strategy

Time and resource constraints are often at the heart of poor quality reports as it is often the case that these reports are prepared at the last minute. After all, the ongoing costs of remaining listed or the cost of being admitted to AIM are felt more by smaller companies than their larger counterparts, therefore having a dedicated resource (whether it be within the finance or governance function) to manage the production of the company’s annual report is usually regarded as an unnecessary or additional cost which the company cannot afford to incur. However, companies who are guilty of this fail to realise the potential benefits of high quality reporting and how this could assist them in the long term, especially in reaching potential investors.

Below are a few things for consideration before embarking on the production or drafting of the annual report:

  • first and foremost try to understand the regulatory compliance and reporting obligations that come with being listed on AIM e.g. the AIM rules, any corporate governance changes, changes to your chosen code of governance or financial reporting standards and how these will apply
  • read the FRC’s annual review of corporate reporting (released every October) and take into consideration the FRC’s expectations of targeted subjects, think about what information shareholders and potential investors are likely to be interested in
  • schedule meetings with the relevant departments/individuals as soon as the prior year financial statements have been signed off, draw up a timetable and begin working on the narrative sections of the annual report before the year-end
  • consider the company’s motive for listing on AIM and budget accordingly to manage regulatory burdens e.g. cost of auditing and printing the report.

Corporate Governance

Since September 2018, the London Stock Exchange (LSE) has published a number of updates to the AIM rules for companies. The most significant being the change to AIM Rule 26, which requires companies to follow a recognised corporate governance code and to disclose the extent to which they have complied with that code.

The focus of the UKCGC, QCA and AIC codes remains on culture, stakeholder engagement and ensuring that the company has a well-functioning and diverse board. Both codes also highlight the importance of having an appropriate balance between executive and non-executive directors supporting the board through committees that have the necessary skills and knowledge to discharge their duties and responsibilities effectively. Understandably, smaller growing companies often appoint non-executive directors for commercial reasons or for their knowledge/expertise in the company’s field.

However, investors place higher value on board members who have a good track record when it comes to corporate governance e.g. being directors independent of the company, experience and engagement in the financial reporting process.

As a further result of their size and if no independent directors are present on their board, smaller quoted companies aren’t as rigorously challenged by their audit committees or board on the quality of
their annual reports in comparison to larger companies.

Improving Areas of Investor Focus

It’s important that annual reports maintain a balance of high-quality financial and non-financial reporting, ensuring that all information in the report is relevant and engaging to investors. The following are keys areas of improvement highlighted by the FRC in its 2018 thematic review of Reporting by Smaller Listed and AIM Quoted Companies:

  • alternative performance measures and strategic reports
  • pension disclosures
  • cash flow statements
  • accounting policies, including critical judgements and estimates
  • cash flow statements
  • tax provisions.


As mentioned above, planning is key. In our experience, smaller listed companies benefit from appointing a project manager for the production of their annual report - project management could fall to the company secretary or the chairperson of the audit committee. The project manager’s role is to define a workable timetable taking internal and external resources into consideration and determining the level of flexibility within the timetable in order to avoid delay to other deliverables within your annual report. The project manager should also define those responsible for sections of the annual report and highlight any key considerations or changes in reporting that the board or advisors need to be made aware of.

The company secretary regardless of whether they are appointed as project manager should conduct a gap analysis to assess current compliance with the company’s chosen code of governance and highlight areas of improvement that can enhance disclosures made in the annual report.

We would also suggest that boards create a feedback loop from institutional shareholders on the company’s previous annual report in order to address any shareholder concerns on lack of reporting. Good preparation, defining a timetable and assigning clear roles and responsibilities will assist in improving the disclosures and subsequently the annual reports for smaller listed and AIM quoted companies. 

Ben Harber FCIS is a Partner and Head of Company Secretarial Services, Shakespeare Martineau

Shaun Zulafqar GradICSA is a Company Secretary, Shakespeare Martineau

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