Consultation outcome

Simpler corporate reporting consultation: summary of responses

Updated 14 October 2024

Introduction

As part of the non-financial reporting review, the Department for Business and Trade (DBT) launched its simpler corporate reporting consultation on 16 May 2024. This followed a call for evidence launched in May 2023 which sought stakeholder views on the value, usefulness, cost and benefits of non-financial information, and a government announcement in March 2024 which set out a package of deregulatory measures to simplify financial and non-financial reporting requirements for UK companies.

This consultation sought views on 2 proposals:

• raising the employee threshold for medium-sized companies to 500 employees
• exempting medium-sized companies from preparing a Strategic Report

The consultation also asked for evidence on the usefulness of the information medium-sized private companies provide to their shareholders or other stakeholders in their Strategic Reports.

Main findings

There were 42 responses to this consultation, with organisations accounting for 37 of these responses, 4 from individuals and 1 from a respondent who identified as ‘other’.

The main findings following the analysis were:

The majority of respondents supported the proposed changes

Most respondents agreed or strongly agreed with the proposals to change the medium-sized threshold from 250 to 500 employees (27 out of 41), and to exempt medium-sized companies from producing a strategic report (24 out of 37).

Reducing the reporting burden is a priority for businesses

The main reason cited for respondents agreeing with the proposals was that it would reduce the reporting burden for companies impacted by the change. Respondents felt that companies on the smaller end of the existing large threshold (251 to 500 employees) are disproportionately affected by the current thresholds, highlighting that such companies do not have the same capacity or resources as the larger companies in the same bracket.

Desire for a holistic review of the thresholds and wider framework

Respondents expressed a desire for the proposals to be introduced, or considered, as a part of a wider package of change and not in isolation. There were some concerns that measures implemented in isolation could further complicate the landscape.

Concerns were raised over a reduction in accountability and transparency

Respondents who disagreed with the measures argued that they risked poor corporate governance practices, particularly surrounding risk management. They had concerns that this could hinder economic stability.

Careful consideration of the evidence is required

The respondents who were more cautious towards the proposal stressed that the government should carefully consider the evidence relating to the changes, as well as reflecting on the wider picture, particularly any unintended consequences.

Methodology

The simpler corporate reporting consultation ran for 6 weeks, launching on 16 May 2024 and closing on 27 June 2024. The government received 42 responses to the consultation - 23 from the online survey, 17 via email and 2 who responded via both the email and survey channels. Thirty-seven respondents were ‘representing an organisation’, as well as 4 ‘individual’ respondents and 1 who identified as ‘other’.

Respondents were asked the extent to which they agreed or disagreed (on a scale of strongly agree to strongly disagree) with each of the proposals, followed by a corresponding qualitative question asking respondents to explain the reasons behind their position.

A final open question invited respondents to provide evidence on the usefulness of the information private medium-sized companies produce in their strategic reports.

The consultation contained a mix of closed and open-ended questions, and individual responses were read and considered in their entirety. Key themes were unpicked from the responses to provide a narrative account of respondents points of view. Throughout this summary, quotes from respondents have been selected to illustrate some of the themes that emerged. Quotes from respondents who asked to remain anonymous may have been slightly altered to ensure anonymity. 

It should be noted that this consultation was launched less than a week prior to the 2024 General Election being announced and closed before the general election took place, effectively meaning that most of the time that the consultation was open, it was the pre-election period. Once an election has been called, there are strict rules on how departments should operate during the pre-election period. For live consultations, this means that “departments should not take any steps during an election period that will compete with parliamentary candidates for the public’s attention”. This effectively meant a ban on publicity for this consultation.

Consequently, the department received a low number of responses and are only representative of those who responded to the consultation. Respondents did not have to answer every question which explains why base sizes differ across questions. The inclusion of views in this summary does not mean they are endorsed by DBT.

Summary of responses by question

Question 1: Do you agree or disagree with the uplift of the employee threshold from 250 to 500 employees for ‘medium-sized’ companies? Please explain your answer.

This question received 41 responses and 34 respondents provided a written comment. Most respondents (27) agreed or strongly agreed that the threshold for medium-sized companies should be uplifted from 250 to 500 employees, compared to 5 respondents who disagreed or strongly disagreed. Seven respondents stated that they neither agreed nor disagreed.

Do you agree with the uplift of the employee threshold from 250 to 500 employees for ‘medium-sized’ companies?	Total
Strongly agree	16
Agree	11
Neither agree nor disagree	7
Disagree	3
Strongly disagree	2
Don’t know	2

Of respondents expressing a view, most of those who agreed or strongly agreed indicated that the change to the medium threshold would reduce the reporting burden on the companies who would be impacted by the change. They highlighted that companies on the smaller end of the ‘large’ category (such as those with 251 to 500 employees) often do not have the resources, capacity or capabilities required to comply with their regulatory obligations for large companies.

One small and medium-sized enterprise (SME) said:

“A company of 250 to 499 employees is usually not large enough, or with enough financial scale to provide full corporate-level reporting. The demands of detailed strategic, risk and governance narrative and non-financial reporting are disproportionately greater than just financial statements reporting. These other areas require deeper and broader skills, experience and resources so we agree that the threshold of 250+ employees should be increased to 500+ employees.” - Friend Studio

Another said:

“These businesses do not have large and complex management teams. They are extremely busy and have many draws on their time, having to be experts across many different topics. Classing a business with 251 employees as a ‘large business’, and therefore bringing it in to the same reporting and regulation regimes as a business with 10,000 employees, does not reflect the reality of business life or resources.” - Family Business UK

The notion that reporting requirements should be proportionate and appropriate to the size of the business was a consistent theme to emerge from the responses that agreed with the proposal. Respondents believed that the current size thresholds disproportionately impact companies who are currently at the lower end of the large threshold and as a result ‘holds these businesses back.’

More specifically, respondents indicated that increased proportionality would enable the redirection of business resources, helping to promote economic growth:

“We understand that many businesses will welcome the proposed reforms as they will be able to take a more informed view on their reporting needs and redirect vital resources to other activities that will help them to grow and expand. The need to maintain a proportionate regulatory regime is important given, the challenging economic environment.” - AICPA & CIMA

Despite being largely supportive of the proposed threshold change, some respondents expressed a desire for the thresholds to be looked at holistically, rather than simply an isolated change to the medium bracket. Preference for a holistic review of the framework was expressed by respondents who stated that they neither agreed nor disagreed with the proposal, believing that a wider package of change would address issues surrounding the complexity and fragmentation of reporting requirements.

There was a sense from some respondents that the change should be deferred until a wider review is conducted:

“While we do not disagree in principle with an uplift of the employee threshold from 250 to 500 employees, we believe this change should be deferred at this stage, and considered as part of, or after, a comprehensive and holistic exercise to streamline size thresholds… The overall reporting landscape remains complex, and this piecemeal change may not have a material impact.” - EY UK

One respondent questioned the benefits of a singular change, arguing that, after the costs of implementation for companies are considered, the change would not be worth doing:

“…there does not seem to be any significant benefit in doing so given the relatively modest number of UK companies (some 2,000) likely to be impacted by such an uplift. In order to have a more significant effect on the reporting landscape, we think it would make more sense to review all of the employee thresholds at the same time. With such a marginal benefit, alongside the costs of understanding the impact and implementing the associated changes, we are not convinced that this is worth doing as proposed.” - ICAEW

The argument was made that the proposal risks becoming counter-intuitive, in that an isolated change could further complicate and fragment the framework:

“Changing only certain elements of the regulations could add to confusion among both preparers of accounts and investors about what requirements they have to comply with and what they expect to see, thus adding to the complexity of the requirement rather than simplifying and making the reporting landscape more understandable.” - KPMG LLP

Respondents who disagreed with the proposal raised concerns regarding reducing the reporting requirements of economically significant companies, particularly the potential for a reduction in accountability and transparency amongst the companies affected. This was associated with a potential increase in poor risk management practices:

“Companies of this size have significant economic impact, and reducing their basic but fundamental reporting requirements undermines visibility into how they manage risks and uncertainties. Effective risk governance, management, and transparency are essential for economic stability and safeguarding growth… our view is the likelihood of them effectively identifying, addressing, and disclosing risks is reduced. This could result in unmanaged risks across many businesses, undermining economic stability.” - Chartered Institute of Internal Auditors

When highlighting the potential consequences of poor risk management practices, one respondent pointed to recent corporate collapses of medium and large companies:

“These collapses occurred because risks were not properly managed and reported. Lowering governance and reporting requirements could lead to more unchecked risks, corporate failures, job losses, and economic instability the opposite of the intended outcome. We support measures that seek to boost economic growth, but not at the expense of fundamental governance and reporting standards, especially in today’s more uncertain business environment.” - Chartered Institute of Internal Auditors

Similarly, the Trades Union Congress expressed strong opposition to the threshold changes, believing the current thresholds are appropriate and realistic. They argue that non-financial reporting is crucial in informing key stakeholders (e.g., investors, regulators, and the public) about a company’s performance and wider societal impact, and that it is not in the public interest to reduce the extent of non-financial reporting in the corporate sector:

“Non-financial reporting plays an important role, alongside financial reporting, in informing stakeholders - including investors, workers and their representatives, suppliers, regulators and the public - about the performance of the company. Companies have significant and important impacts on their stakeholders and on society, the environment and the economy more broadly. These impacts are a major part of the potential benefits and disbenefits or harms that companies create. As with financial reporting, non-financial reporting is an essential part of holding companies to account for their performance.” - Trades Union Congress

Question 2: Do you agree or disagree with exempting medium-sized private companies from having to prepare a Strategic Report? Please explain your answer.

This question received 37 responses and 33 respondents provided a written comment. Overall, respondents were less inclined to support this proposal than they were the first. Twenty-four respondents agreed or strongly agreed with exempting medium-sized companies from preparing a Strategic Report, compared to 10 respondents who disagreed or strongly disagreed. Three respondents stated that they neither agreed nor disagreed.

Do you agree or disagree with exempting medium-sized private companies from having to prepare a strategic report?	Total
Strongly agree	13
Agree	11
Neither agree nor disagree	3
Disagree	8
Strongly disagree	2

Respondents who agreed with the proposal noted that exemption from the preparation of a strategic report would help alleviate the reporting burden on the businesses affected by the change. They pointed to the time and cost implications associated with preparation of the Strategic Report and believed these to disproportionately hinder SMEs:

“The costs include: staff costs… time costs… production costs… IT infrastructure costs… Larger companies have more in-house experience, established reporting processes, and human resources to handle these tasks efficiently. For medium-sized private companies, the time and effort spent on reporting is time that cannot be dedicated to other essential business activities. So, exempting them from having to produce this report would streamline administrative tasks, freeing resources for core business activities.” - CGI

Other respondents in agreement with the proposal believed the Strategic Report to be a waste of time, referencing the lack of engagement from stakeholders with its content. They argued that shareholders and other key stakeholders often report directly to the company to find the information they need, making the Strategic Report redundant:

“In our experience, shareholders of medium-sized private companies will often have other means of accessing relevant information…for example, this might be via informal relationships with management for a family-owned company or via an investment agreement with prescribed information rights for outside investors. In our experience, shareholders (in particular, sophisticated outside investors) are more likely to obtain and make use of information obtained through these means and, as a result, we agree that they may get limited benefit from the Strategic Report.” - City of London Law Society

“The Strategic Report for a small/medium-sized company is an inappropriate and unnecessary report and it adds little to any external shareholder’s or third party’s understanding of the business or its operations. And because it is seen as serving little purpose, it is also often just copied from year to year.” - Individual respondent

Respondents highlighted that many of the companies in scope of the change are subsidiaries and more useful content is available at the group level:

“We fully support the proposal to exempt ‘medium-sized’ companies from having to prepare a Strategic Report. A significant number of ‘medium-sized’ entities belong to a group who prepare consolidated financial information, including a Strategic Report. It is our view that stakeholders are able to obtain enough useful information from group Strategic Reports which outweighs the burden of preparing one at a ‘medium-sized’ entity level.” - Anonymous organisation

In contrast, respondents who disagreed with the proposal argued that the Strategic Report provides stakeholders with key insights into a business’ overall strategy and the management of risk. They argued that the Strategic Report is essential for upholding accountability and transparency, and believed the benefits of disclosure outweighed the preparation costs:

“The Strategic Report contains valuable information for stakeholders in terms of understanding the company, and the principal risks and uncertainties that it faces in the future. Companies of all sizes are likely to be facing risks over the coming years relating to ESG, and stakeholders are becoming more and more interested in a company activities and risk profile in this space. To remove the requirement for a medium company to disclose its principal risks and uncertainties would result in such companies failing to provide information that stakeholders would find valuable.” - Consultative Committee of Accountancy Bodies-Ireland

“These reports are vital for transparency and accountability, providing key insights into a company’s business, risks, and strategies. Proper risk management and transparency are essential for economic stability and growth. Reducing these reporting requirements undermines the visibility of how companies manage their principal business risks and uncertainties.” - Chartered Institute of Internal Auditors

It was noted that the content companies are required to disclose in their Strategic Report is a vital part of the corporate responsibility framework. It provides transparency around how companies consider key societal issues, such as the gender pay gap, modern slavery and their environmental impacts. One respondent raised concerns over the potential consequences of medium companies being exempted from disclosing this information:

“We would be concerned that if companies are no longer required to cover this aspect of non-financial reporting that there would then be less transparency around both the work and the need to encourage equality at work and the need to work towards a greener and more sustainable future. This could embolden companies with poor employment practices and / or a disregard for the climate to carry on with their poor practices.” - ASLEF

Respondents who were reluctant to remove the requirement for medium-sized companies to produce a Strategic Report noted that whilst some aspects were beneficial, other parts could be revised or reformed. This would ensure the content is meaningful, useful to stakeholders and less ‘boilerplate’ in nature:

“We acknowledge that strategic reports have increased significantly in length in recent years to the point that they can no longer be considered strategic so we would support a more fundamental review of the content of the strategic report requirements more generally.” - ICAS

Like the responses to consultation question 1, respondents advocated for a holistic review of the framework, particularly given the possibility of future changes to sustainability reporting requirements:

“We make the observation that the justification for removal of the need to prepare the SR needs to be measured against new forms of corporate reporting (in relation to Sustainability and Non-Financial Disclosures, for example), so that a more holistic appraisal of relative need and justification can be made.” - Group A accountancy firms

Question 3: Please provide any evidence you have regarding the usefulness of the information medium-sized private companies provide to their shareholders or other stakeholders in their Strategic Reports.

There were 22 responses to this question, but respondents provided very little in the way of specific evidence in their answers. The tone of the responses was similar to that of consultation questions 1 and 2.

Responses were mixed; some respondents expressed that the Strategic Report is of little value to shareholders and other key stakeholders.

One respondent said:

“From my experience as a qualified accountant, an auditor, a preparer and reviewer of financial statements, and the co-founder of an SME, I do not believe that there is any substantive evidence.” Individual respondent

This contrasted with other respondents who believe the Strategic Report provides key insights into a company’s direction, risk management and performance.

One respondent said:

“The strategic report provides essential information that supports stakeholder engagement and informed decision-making. Shareholders and other stakeholders benefit from insights into a company’s strategic direction, risk management practices, and performance metrics.” - Chartered Institute of Internal Auditors

Some respondents advocated for high quality reporting in the Strategic Report, believing companies will benefit from the content if it is meaningful. They noted that Strategic reports are often low-quality and boilerplate in their nature: 

“Our firms’ experience is that the companies with which we deal (we have business relationships from client entities that arise from financial reporting or non-financial reporting assignments) benefit from having to commit to a coherent SR, obliging their management to provide meaningful specification around their objectives, KPIs, potential issues and proposed solutions, but only so long as entities make a genuine effort at high-quality reporting.” - Group A accountancy firms

“It is important to ensure companies can produce meaningful disclosures instead of resorting to boilerplate answers when faced with excessively demanding requirements.” - CGI

This concludes the government response to this consultation.