Annual reports have grown substantially in length over recent years and we are seeing streamlining become a top priority for our clients. Growing disclosure requirements are being met with calls for simplification and standardisation, something that the UK government’s eagerly-awaited modernisation of corporate reporting consultation is expected to address.

In the meantime, adopting what the FRC calls a 'materiality mindset' can help keep reports concise, whilst ensuring decision-useful information for investors and other stakeholders isn't lost. Today the FRC published insights on applying materiality in corporate reporting, a helpful guide that is intended to help entities develop processes for applying materiality to their annual report. 

Why does it matter?

Materiality is a concept that helps preparers of annual reports focus on the most important issues for the business and for primary users. Not everything is material and as reports have grown longer and more complex over time, good materiality judgements are essential to ensure reports are kept focused and effective.

Here are the FRC’s six practical takeaways to consider when applying materiality to your next report:

1. Know your audience: start with primary users (investors, lenders, creditors) and what decisions they're making. Use stakeholder feedback and analyst reports to guide you.
2. Use your sources: scan board packs, risk registers, sustainability assessments, market trends, peer reports but avoid taking a checklist approach, or add disclosures ‘just in case’.
3. Filter the information: ask the materiality question: “could this information influence primary user's decision-making? If not, cut it or move it to your website.
4. Tell your story: structure disclosures around strategic themes. Use cross-referencing to link ideas and avoid duplication.
5. Step back and reassess: read the report cover to cover. Is it fair, balanced and understandable? Does it include all material information? Are the messages coherent and consistent with other communications such as investor presentations?  
6. Refresh your assessment every year: materiality isn't static so make sure you’re removing content that is no longer relevant, and be willing to redraft sections to reflect your latest strategic themes and key issues.

If you would like support with materiality or to discuss how Black Sun can enhance your annual reporting, please contact:

Bob Crosbie-Dawson, Head of Business Development
bcrosbie-dawson@blacksun-global.com.