The Strategic Report is a report required by the Companies Act for medium and large sized companies (although ineligible small companies also qualify). It’s where you set out what your business does, the risks it faces, what you’re looking to achieve and how well you’re progressing. To many, it can feel like an unnecessary and intrusive burden, but it provides an opportunity to highlight good news and set the tone for the remainder of the financial statements.
If your company is of local or national significance, then it is likely that your competitors, and the press, may consider and review your financial statements and scrutinise what has happened during the year. The strategic report will be your opportunity to set the tone and narrative for the company’s performance. Inputting fewer details leaves the reader open to making their own assumptions, particularly if results are down, stagnant, or need a little interpretation.
The FRC have produced a very useful document, and within Appendix 2 have included a checklist of what applies to your company based on its size: https://www.frc.org.uk/getattachment/fb05dd7b-c76c-424e-9daf-4293c9fa2d6a/Guidance-on-the-Strategic-Report-31-7-18.pdf
One thing to be cautious about when drafting your strategic report is the very fine line between being positive and open, and giving away commercially sensitive information, particularly through naming clients and stating sensitive KPIs. But it is possible to be positive and tell the story you want without giving away too much information and still be compliant. For example, Section 414c of the Companies Act states that the fair review of the business should be consistent with the size and complexity of the business, and the Act is also clear that information need not be given on impending developments that would be prejudicial to the interests of the company.
When preparing your strategic report, the key points you will need to include are:
- A fair review of the business which includes a comprehensive and balanced analysis of the performance during the year;
- A description of the principal risks and uncertainties facing the company;
- Include financial KPIs that are necessary to explain the development and performance of the company in the year;
- An explanation of amounts included within the financial statements that ought to be highlighted to the user;
- A large company will also need to use non-financial KPIs including environmental and employee matters;
- A large company will also need to make a separate statement as to how the directors have performed their duty of promoting the success of the company for the benefit of the members as a whole, in line with Section 172 of the Companies Act. See section 8 of the guidance from the link above.
If you have any questions about writing your Strategic Report, then please do get in touch with our Head of Audit, Grahame Maughan, who would be delighted to help. All queries will be treated on a confidential basis.