RSS feedsFinance directors are facing additional reporting burdens as a result of the latest regulations issued by the European Union. 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. But even so, there are a significant number of changes for all companies and their investors to get to grips with. Companies with a 31 December year-end will not be covered by the new rules until next year, but for those with a financial year beginning on 1 April the clock is ticking loudly.
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 half-yearly reporting.
You don’t have to have the mathematical skills of an average FTSE FD to work out that if you are reporting twice a year between annual and half-yearly then that adds up to quarterly reporting – a frequency that has constantly been rejected by UK corporates. But just because you report four times a year that doesn’t amount to quarterly reporting, at least not according to the Financial Services Authority (FSA).
According to the FSA, IMS is not a quarterly report, and FDs of companies traded in New York who are used to producing quarterly figures and commentary under SEC rules, may agree. The requirement here is for no more than an explanation of material events and transactions that have taken place during the relevant period and 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. For those that do, the FSA has issued some informal views, which say that the content will depend on the circumstances of the companies and the markets in which they operate. A trading statement might fulfill the IMS obligation and, in some situations, financial information may not need to be included. The idea is that the format will be driven by best practice and the progress of the IMS will be reviewed in 18-24 months.
There is also some uncertainty over when IMS should be produced. Lawyers who have pored over the rules tell us that it does not relate to a specific three-month period in the way that the half-year 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 which opens 10 weeks after the beginning of the relevant six-month period and closes six weeks before its end. 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. But companies can continue to make a preliminary announcement if they wish. All this should lead to a degree of head scratching and poring over diaries to work out the suitable time slots.
Research by accountancy firm Deloitte has revealed that nine out of ten companies are going to have to step up the amount of reporting they currently do to meet the obligations laid out in this new directive.
At the same time, the deadline for reports have been brought forward, with half-yearly reports now having to be published within two calendar months of the period end and annual reports within four months. And that means, according to the research, that 46% of listed companies are going to have to tighten their half-yearly reporting to squeeze into the two month gap. This is going to cause some real pain among those producing the numbers.
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 half-yearly group reports must comply with IAS34 interim financial reporting. This, of course, seems entirely logical. Astonishingly, however, just 9% of half-yearly reports have adopted the standard. So if some finance departments decided that IFRS implementation could take a back seat for a while they have to think again. But some listed companies still report under UK GAAP and so have to look to the Accounting Standards Board’s statement on half-yearly 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.
