The Reduced Disclosure Framework

Transcription

1 The Reduced Disclosure Framework An approach to shareholder communication: Option B Enabling an objection via a response form February 2015

2 Contents Page Section 1 Introduction to the Reduced Disclosure Framework 3 Section 2 Shareholder Notification Considerations 4 Section 3 Shareholder Notification Public Companies 5 Section 4 Shareholder Notification Private Companies 7 FRS 101 1

3 The purpose of this report is to set out certain considerations and illustrative guidance when communicating a company s intention to adopt the reduced disclosure framework to shareholders. Whilst we have suggested indicative wording for communication with shareholders, it is important to note that there are no clear guidelines of how companies should undertake this process. We have provided practical suggestions based on our understanding of the requirements of the standard. Our guidance should not be relied upon to fulfil compliance with the requirements of the standard, they are for reference only. [Document title] 2

4 Introduction to the Reduced Disclosure Framework The Financial Reporting Council (FRC) has recently changed financial reporting standards in the United Kingdom and the Republic of Ireland, effective for years commencing on or after 1 January These changes replace almost all extant UK GAAP with the following Financial Reporting Standards: FRS 100 Application of Financial Reporting Requirements; FRS 101 Reduced Disclosure Framework: Disclosure exemptions from EU-adopted IFRS for qualifying entities; FRS 102 The Financial Reporting Standard Applicable in the UK and Republic of Ireland; and FRS 103 Insurance Contracts FRS 101 and FRS 102 with reduced disclosures permit qualifying entities certain disclosure exemptions in preparing the individual accounts. The use of the disclosure exemptions is however conditional on all of the following criteria being met: the shareholders have been notified in writing about the use of the disclosure exemptions; the shareholders have not objected to the disclosure exemptions; the reporting entity applies the recognition, measurement and disclosure requirements of either (a) EUadopted IFRS but makes amendments to those requirements where necessary in order to comply with the Companies Act and the Regulations because the financial statements it prepares are Companies Act individual accounts as defined in s395(1) of the Companies Act; or (b) FRS 102 the reporting entity provides in the notes to its financial statements a brief narrative summary of the disclosure exemptions adopted; and the name of the parent of the group in whose consolidated financial statements its financial statements are consolidated and from where those financial statements may be obtained. The new standards do not state whether the requirement of the reporting entity to notify its shareholders about the use of the disclosure exemptions is an annual requirement or whether a more open-ended notification can be provided. In addition, no timescale is mentioned. Therefore, there is no requirement that notification occurs in the period covered by the financial statements; it could be earlier or later. In the absence of clear guidance, we would recommend that entities obtain legal advice as to the form in which they should notify shareholders of their intention to use FRS 101 or FRS 102 with reduced disclosures. Objections to the use of FRS 101 or FRS 102 with reduced disclosures may be served on the qualifying entity in accordance with reasonable timeframes and format requirements by a shareholder that is the immediate parent of the entity, or by a shareholder or shareholders holding in aggregate 5% or more of the allotted shares in the entity or more than half of the allotted shares in the entity that are not held by the immediate parent. The new standards do not explain what is meant by reasonable timeframes and format requirements in respect of any shareholder objection. Entities may wish to obtain legal advice as to what reasonable timeframes and format requirements should be specified in any notice provided to shareholders. An objection by a shareholder or shareholders holding in aggregate 5% or more of the total allotted shares or more than half of the allotted shares that are not held by the immediate parent (which could be less than 5% of the total allotted shares) automatically means that FRS 101 or FRS 102 with reduced disclosures cannot be applied by the entity. A shareholder is not required to supply a reason for any objection. In the section that follows, we provide some considerations on the form that communication to shareholders may take. [Document title] 3

5 Shareholder Notification Considerations Notice to be circulated to all shareholders and where possible, be distributed at least 3 months in advance of the start of the first year of adoption of FRS101 or FRS 102 with Reduced Disclosures including with the 2015 notice of AGM will reduce the need for a separate procedure and may in some cases allow plenty of time. Companies that have not yet notified their shareholders of their intention to adopt FRS101 or FRS102 with Reduced Disclosures in their next financial statements should consider doing so as soon as possible. There is no guidance available in relation to the frequency of communication to shareholders. However, if the shareholders were to object, a company could send further notice the following year in case an alternative shareholder opinion was to be achieved. If shareholders of at least 5% of the shares allotted object, companies may not adopt the reduced disclosure framework. If significant shareholders choose to object, the company might wish to oblige them by reverting to full disclosure accounts. If shareholders are only interested in seeing certain additional information. Shareholders of public companies should be given 21 clear days notice from the date of the letter is deemed received to object. For shareholders of private companies, this should be 14 clear days notice. There is no specific guidance on the notice period to be given but our recommendations are in line with requirements for general meeting notice according to the Companies Act Full company name and company number are to be included in the communication. The standards require that the shareholders should be notified in writing about the use of the disclosure exemptions. There is however no formal guidance as to the format that this notification should take. We have set out in the sections that follow some illustrative communication to: a) Shareholders of a public company. b) Shareholders of a private company. FRS 101 4

6 Shareholder notification Public companies [Company] plc Annual Report and Accounts Reduced Disclosure Requirements We wish to notify you about certain proposed changes to the information that will be disclosed in [Company] s future annual report and accounts. The Financial Reporting Council (FRC) (the body responsible for setting UK standards for accounting, auditing and actuarial work) has published a suite of new financial reporting standards which replace UK GAAP in its entirety. Companies in the UK and Ireland are required to adopt this new accounting framework in their financial statements for periods commencing on or after 1 January Under this new framework, the group will continue to prepare consolidated accounts under EU-adopted International Financial Reporting Standards (IFRS). However, the directors have elected to present the financial statements of the parent company (historically prepared under previously extant UK GAAP) under [FRS 101 Reduced Disclosure Framework (FRS 101) or FRS the Financial Reporting Standard applicable in the UK and Republic of Ireland with Reduced Disclosures]. [FRS 101 or FRS 102] permits the financial statements of a parent entity and its subsidiaries to be prepared under a reduced disclosure framework if these companies meet the definition of a qualifying entity. A qualifying entity is defined as a member of a group where the parent of that group prepares publicly available consolidated financial statements which are intended to give a true and fair view (of the assets, liabilities, financial position and profit or loss) and that member is included in the consolidation. The directors have considered the criteria required to apply the reduced disclosure framework and have satisfied themselves that the parent company is eligible to adopt the reduced disclosure framework. As a result, the company will be exempt from providing the following disclosures: List disclosure exemptions to be taken It should be noted that the reduced disclosures apply only to the individual accounts of the parent company, [Company] plc. The consolidated accounts for the Group continue to be prepared under full IFRS. If reduced disclosures are applied, this would reduce the burden and cost of [Company] s statutory reporting obligations without adversely impacting on the presentation of the Group financial statements. If you do not object to the proposal, no further action is necessary. Please advise by [date allow 21 days notice] by completing and sending the enclosed shareholder response form to our Registrar [name of Registrar] if you object to the disclosure exemptions available to [Company]. It would help us if you can provide reasons for any objection. If we do not receive objections totalling more than 5% of the shares in issue, the proposed changes to the parent company s financial statements will be made in the [year] Annual Report and Accounts. Yours faithfully, [Director/Company Secretary] Company Name: Company Number: [Document title] 5

7 Shareholder notification Public companies (cont d) Example shareholder response form to accompany shareholder letter [Company] plc shareholder communications response Shareholder Reference Number Only tick this box if you object to the proposal to reduce disclosure Please insert the number of shares used to object (leave blank if this is your entire shareholding) You must return your response form to [Registrar] by no later than [date allow 21 days]. You do not need to return this Response Form unless you wish to object to the proposal.... FRS 101 6

8 Shareholder notification - Private companies [Company] Statutory Financial Statements Reduced Disclosure Requirements As [the/a] [ultimate parent undertaking] AND/OR [shareholder] of [Company], we are writing to inform you of our intention to adopt [Financial Reporting Standard 101 ( FRS 101 ) or Financial Reporting Standard 102 ( FRS 102 ) with reduced disclosures] for the [date] statutory financial statements. This will reduce disclosures required in the financial statements, specifically those listed below: List the disclosure exemption to be taken In accordance with [FRS 101 or FRS 102], shareholders must be notified of the intention to adopt the standard and be given the opportunity to object. If you do not object to the proposal, no further action is necessary. Please advise by [date allow 14 days notice] [to the address above] if you object to the disclosure exemptions available to [Company]. If we do not receive objections totalling more than 5% of shares in issue, the proposed changes will be applied to the [date] statutory financial statements. Yours faithfully, [Director/Company Secretary] Company Name: Company Number: FRS101 7

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