Government Consultation on Modernising Corporate Reporting

Introduction

The Government launched its consultation Modernising Corporate Reporting on 7 September.  It proposes a “once in a generation” overhaul of the UK's Companies Acts to streamline out of date, redundant and duplicative requirements and to reduce disproportionate reporting burdens.  These proposals are at an early stage, without detail on precise thresholds or provisions at present but advocate substantial reductions in obligations or reporting in a wide range of areas. 

The consultation seeks to refocus reporting on information relevant to investors and creditors, while making requirements more proportionate to company size. Responses are requested by 30 November 2026, with findings expected in 2027.

Key proposals

1. Refocusing corporate reporting

It is proposed that corporate reporting should primarily support investor and creditor decision-making by:

• Refocusing reports on financially material information.
• Reducing disclosure requirements that are not decision-useful to investors and creditors.
• Simplifying strategic reporting to allow companies to tell a clearer and more focused story.
• Improving proportionality so reporting requirements better reflect company size and economic significance.
• Creating a more coherent framework with less duplication between legislation, accounting standards and regulatory requirements.

2. Company size thresholds 

The Government is considering removing the distinction between small and medium-sized companies creating a broader SME reporting regime. Medium-sized companies could be allowed many of the exemptions currently available only to small companies.

The consultation also seeks views on consolidating and simplifying the current complex network of thresholds and potentially introducing a new "very large" company category for narrative reporting requirements to target the largest businesses.

3. Audit (increasing the threshold)

A. Extended audit exemption

A key proposal is to extend the current small company audit exemption to many medium-sized companies and subsidiaries.  This may include removing the requirement for a parent company guarantee currently required for subsidiary audit exemptions.

B. New voluntary assurance for smaller companies

The paper notes that an audit may be important to facilitate access to finance, so proposes a new voluntary assurance standard for smaller companies to assist with lender confidence and enable more small and medium companies to take advantage of the audit exemption.

C. PIEs not exempted

The audit exemption will not cover regulated financial services businesses or Public Interest Entities (PIEs) though the consultation does seek input on the nature of companies which should be ineligible for the exemption.

D. Assurance over sustainability reporting

While the government recognises that assurance of sustainability reporting is a long-term goal, it notes in the consultation that there is significant concern over cost and practicality here.  It has therefore made no proposals for implementing an assurance requirement for sustainability reporting.

4. Financial reporting framework 

The consultation proposes:

• Retaining only high-level reporting requirements in company law, with detailed requirements moving to accounting standards.
• Streamlining UK reporting standards into four main frameworks covering listed companies, large companies, SMEs and micro-entities.
• Introducing a dedicated accounting standard for not-for-profit entities, reducing the reliance on SORPs.

5. Annual reports for private companies

Some significant reductions in reporting are proposed for private companies.  The government has already proposed removing the requirement to produce a directors’ report and exempting medium sized companies and subsidiaries from producing a strategic report.  In this paper it also proposes reducing the specific requirements of the strategic report to a set of basic principles covering

• Business model  
• Performance review
• Resources and relationships
• Strategy and
• Risks

These requirements may be restricted to cover only quoted and the new “very large” private companies.

The paper proposes dropping many specific disclosure requirements including, for instance:  the requirement to report on the gender split of staff and board, policies in respect of environmental and social issues and how these are managed, human rights, anti-corruption and bribery policies, non-financial KPIs and the s172 statement.  It notes that this doesn’t mean companies should stop reporting on these areas where they are financially material, but that not every topic need be covered.

A. Governance

The consultation considers ways to streamline corporate governance reporting and make it more decision useful.  Key proposals include:

• Considering where reporting is necessary and reviewing the thresholds which determine which companies need to report
• Moving governance reporting from subsidiary level to group level.
• Moving governance reporting to the company website

B. Reporting requirements not considered for removal

The government does not propose removing streamlined energy and carbon reporting (SECR) or climate-related financial reporting (CFD) both of which are subject to upcoming government reviews outside this consultation.

6. Moving reporting from the annual report to websites

The consultation explores moving some disclosures out of the annual report and onto company websites or digital portals.  This could be useful for disclosures of policy or process or “static” information which does not change frequently such as governance reporting.  Portal reporting is proposed for standardised quantitative disclosures as this could allow users to access multiple companies’ information in one place and facilitate comparability.

7. Dividends and other distributions

The consultation proposes replacing the current complex distributable profits regime with a solvency-based approach.  This would remove the difficulties with disclosure and calculation of distributable reserves and be more suited to the aim of avoiding going concern issues in the aftermath of significant dividends.

8. Reporting for quoted companies

A. Remuneration reports

The Government proposes substantially reducing the requirements of the remuneration report.  These can take up a substantial part of quoted company annual reports.  It also proposes removing the requirement to hold an annual advisory vote on remuneration as the triennial policy vote already requires shareholder authorisation.

Remuneration report requirements would be reduced to a small number of key areas including:

• The single total figure of remuneration table for directors
• The statement by the chair of the remuneration committee summarising key decisions and proposals
• Performance measures attached to pay in the previous year
• Forward looking remuneration policy setting out maximum variable pay outcomes
• The performance graph showing CEO pay and total shareholder return (TSR)
• Other tables and requirements will be removed. 

B. Corporate Governance Reporting

As for private companies the government is considering how this area could be streamlined.  In particular it asks how it could help companies make better use of the flexibility in the UK Corporate Governance Code and whether reporting could be moved to company websites.

9. Maintaining the streamlined format (Government Gateway)

The Government proposes a new “Reporting Gateway” which would review any new corporate reporting requirements to ensure they remain proportionate, investor-focused and non-duplicative.

10. Digital communication

The consultation suggests that digitisation of corporate reporting is supported by considering:

• Making electronic shareholder communications the default and ending the need for consent before using digital communication with shareholders, though with an opt in for paper communications.
• Permitting fully virtual AGMs and removing the potential need for a physical location.
• Expanding electronic tagging (iXBRL) and machine-readable reporting.
• Requiring directors and auditors to sign off electronic formatting.

Conclusion

The consultation represents a major deregulatory exercise and offers significant possibilities for increasing clarity and reducing the volume of corporate reporting for a wide range of companies, particularly current small and medium companies.  It focuses on making corporate reporting more relevant to investors and creditors, embracing digital reporting, simplifying dividend and audit rules, and introducing stronger controls to prevent future reporting burdens from accumulating.