Strategic Report – A new page in the Annual Accounts!

I was asked by a client a couple of weeks ago about the Strategic Report; well, actually, to assist the directors with coming up with the draft report. The company has overseas operations in different continents; the directors were unsure on what needed to be included in the report.

This is a new requirement under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 whereby all UK companies other than those entitled to the Small Companies exemption, are required to prepare a Strategic Report in addition to the usual Directors’ Report. This applies for the accounts with financial year ended on or after 30 September 2013.

The purpose of this report is to inform members of the company and help them assess how the directors have performed their duties.

The Strategic Report must contain a fair review of the business and a description of the principal risks and uncertainties facing the company. The review must present a balanced and comprehensive analysis of the development and performance of the company during the period under review as well as the position of the company’s business at the year end.

The directors must also, to the extent necessary for better understanding of the performance of the company, include analysis of what the directors consider financial Key Performance Indicators. The directors may also include other Key Performance Indicators, such as environmental and employee matters.

The directors must ensure that the contents of the report is consistent with the financial statements.

The requirements for a quoted company are more extensive covering the company’s strategy, business model and information on the directors and employees.

I used the following headings in assisting the client with writing up the Strategic Report:

Introduction:

  • Include principal activities of the company and its subsidiaries.

Business Review:

  • Fair review of the performance of the company for the year and position at the year end
  • The directors may also include the company’s plan for the future; for example new market or development of new product and how this might impact the performance of the company.

Principal risk and uncertainties

  • Principal risks are the risks faced by the company in their day to day business. This can be cash flow risk, credit risk, foreign exchange risk, interest rate risk or any other risks that are normally discussed by the Board.
  • For every risk identified, the directors should include an explanation on how the company managing this risk.
  • The principal risk and uncertainties should be current and not just rolled forward from year to year.

Financial Key Performance Indicators

  • This should include what the directors consider as measures of the performance of the company. Ideally, this should be linked to the strategic aims and objectives of the company.
  • For example this could be increased revenue, improved margin or increased production.

The report must be approved by the Board and signed on its behalf by a director or the Company Secretary.

At the end after a further brain storming session, we came up with the report and the Board approved it. Another happy client…

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