Finance directors (FDs) are facing additional reporting burdens as a result of the latest regulations issued by the European Union (EU). The cold comfort for UK-based FDs is that the changes arising from the implementation of the EU Transparency Obligations Directive will not be as dramatic as the changes for listed companies based in other countries.
The key change – and one that has been the subject of little discussion – is the requirement for all fully listed companies to issue interim management statements (IMS) twice a year in between annual and bi-annual reporting.
This basically means quarterly reporting – a frequency that has constantly been rejected by UK corporates. But it doesn’t amount to quarterly reporting to the Financial Services Authority (FSA).
According to the FSA, IMS requirement here is for no more than an explanation of material events and transactions that have taken place during the relevant period, their impact on the financial position and a description of the financial position, and performance of the company during the relevant period.
In defence of these EU reporting requirements, it should be noted that any company under a separate obligation to produce a quarterly financial report under overseas rules will not also have to produce an IMS.
A trading statement might fulfil the IMS obligation and, in some situations, financial information may not need to be included.
There is also some uncertainty over when IMS should be produced. Lawyers say it does not relate to a specific three-month period in the way that the bi-annual report relates to the first six months of the financial year.
Instead, the requirement is to produce the IMS at any time during a window that opens 10 weeks after the beginning of the relevant six-month period and closes six weeks before it ends.
The existing obligation to make a preliminary announcement of full-year results within 120 days of the year end disappears because it is likely to coincide with the date for the following year’s first IMS.
The other major change for companies concerns the how, as well as the when and how often. Under the directive, all international financial reporting standard bi-annual group reports must comply with IAS34 interim financial reporting.
This, of course, seems entirely logical. Astonishingly, however, just nine per cent of bi-annual reports have adopted the standard. So if some finance departments decided that International Financial Reporting Standards implementation could take a back seat for a while, they will have to think again. But some listed companies still report under UK Generally Accepted Accounting Principals and so have to look to the Accounting Standards Board’s (ASB) statement on bi-annual reports to satisfy the directive and the requirement to present a true and fair view. The ASB is in the midst of tweaking its guidance to bring it into line with the directive.
In many ways, this should be an important step in European corporate reporting with a pan-European disclosure system becoming a reality. The current view among FDs is that a regimented burdensome reporting regime will merely result in the bland and the boiler plate, not the commentary and analysis style they keep being told we want them to produce.
Peter Williams is a chartered accountant and freelance journalist.
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