Annual report and accounts: regulatory review obligations
The annual report and accounts (AR&A) is the primary vehicle through which listed companies and large regulated firms communicate with shareholders, regulators, and other stakeholders about their financial performance, governance arrangements, and risk management. For listed companies, the AR&A is subject to review by the FCA's Primary Market Oversight team and, for FTSE 350 companies, by the Financial Reporting Council's Corporate Reporting Review team. The standard of disclosure expected in AR&As has risen significantly over the past decade, and the addition of climate, diversity, and sustainability reporting requirements has made the document substantially more complex — and the risk of material deficiencies substantially higher.
The FRC's Corporate Reporting Review (CRR) team reviews a sample of accounts from FTSE 350 and smaller listed companies each year, selecting topics and companies based on risk indicators and thematic focus areas. CRR letters — issued when the FRC identifies potential departures from reporting requirements — require detailed company responses and, where deficiencies are confirmed, restatements or enhanced disclosure in the following year's accounts. The FRC's annual review of corporate reporting highlights persistent areas of weakness, including: insufficient specificity in going concern disclosures; inadequate sensitivity analysis for key estimates and judgements; and climate-related disclosures that do not adequately link risks to financial statement impacts. Companies should review the FRC's most recent annual review publication before finalising their accounts.
The UK Corporate Governance Code (2024 revision, applying to financial years beginning on or after 1 January 2025) introduces significant changes to board reporting requirements, including new requirements for annual board performance review disclosure, enhanced reporting on internal control effectiveness (bringing the UK closer to the Sarbanes-Oxley model), and updated requirements on audit committee reporting. The internal controls statement requirement — which will require the board to make a declaration on the effectiveness of material internal controls — is a particularly significant change for many companies, as it may require investment in internal control documentation and testing that has not previously been needed for UK purposes.
For regulated firms that are not listed but produce annual accounts as a matter of regulatory requirement (for example, under MIFIDPRU or as a condition of their Part IV permission), the FCA may review the accounts as part of supervisory engagement. Discrepancies between regulatory returns submitted to the FCA and information disclosed in the accounts — particularly regarding capital, revenue, or material liabilities — will be identified and may trigger supervisory follow-up. Firms should ensure that their accounts preparation process includes a cross-check against regulatory data submissions.
ESG reporting requirements in annual accounts
Listed companies must include TCFD-aligned disclosures (from LR 9.8.6R for premium listed companies), Section 172 statements, employee reporting, and (for large companies) energy and carbon reporting in their AR&As. The requirements are complex and interacting, and the quality of ESG disclosure in annual reports has been identified as a priority review area by both the FRC and the FCA. Firms should allocate adequate time and expert resource to ESG sections of the AR&A, which in practice means starting the drafting process for these sections earlier than for other sections of the report.