Modernising Corporate Reporting: simplification or more complexity?

Last month, the Government published an “ambitious consultation” with the aim of supporting economic growth and simplifying corporate reporting. The objectives are difficult to argue with: clarity of purpose, flexibility and trust, simplicity and coherence, proportionality, and ensuring the framework is fit for the future.

While the direction of travel is positive, some of the detail feels muddled and, if anything, even more complicated than the corporate reporting landscape of today.

Broadly, for non-listed businesses, the plans can be summarised into four categories:

• ‘Streamlining’ reporting standards
• Simplifying the ‘front half’ of the annual report
• Replacing the current rules on distributable profits
• ‘Embracing’ digital reporting

‘Streamlining’ reporting standards

The Government's proposal is to align reporting frameworks with the revised company size thresholds, creating four main reporting categories:

• UK-IAS for large listed entities (effectively IFRS)
• UK GAAP for large companies (presumably FRS 102 as it stands today, having just been revised)
•  UK GAAP for SMEs (potentially extending the scope to use the also just revised FRS 102 1A)
• UK GAAP for micro-entities (the rarely seen FRS 105, or FRS 102 1A?)
  

The benefits of changing reporting standards

One aspect that makes immediate sense is the intention to bring reporting requirements together in a single place. Businesses and advisers currently have to navigate multiple pieces of legislation and accounting standards to understand what is required. Consolidating those requirements would be a genuine simplification and, frankly, feels like common sense.

Drawbacks to the Government's plans for reporting

Where things become less straightforward is the proposal for a separate SME reporting framework. In practice, this is likely to mean introducing further exemptions from FRS 102 rather than creating an entirely new standard.

I struggle to see how inserting another layer of reporting optionality would serve any benefit in terms of ‘streamlining’ financial reporting. Indeed, as FRS 102 has just been revised, the appetite for further significant changes in the short to medium term is surely slim to nil. More importantly, FRS 102 is already a relatively well-structured and understandable standard.

The practical implications are also difficult to ignore. Should businesses that have only recently implemented the new revenue recognition and lease accounting requirements be able to reverse those changes a few years later? And what happens when companies move above and below the size thresholds, potentially switching between different reporting requirements? That hardly feels like a recipe for simplification.

Removing key information for SME groups?

Some of the most significant proposals involve removing the requirement for SME groups to prepare consolidated accounts and potentially eliminating cash flow statements from SME annual reports.

In my view, both are valuable sources of information for stakeholders. Cash flow information often provides insights that simply cannot be obtained from the balance sheet and profit and loss account alone. Likewise, consolidated accounts frequently offer the clearest picture of the economic reality of a group structure.

The proposal to remove the "true and fair" presumption for SME accounts is another area that raises questions. While intended to reduce burden, it could ultimately diminish the usefulness and credibility of financial reporting. The wider implications for audit reporting would also need careful consideration.

Audit exemptions: a step too far?

The consultation also explores extending the small company audit exemption to all SMEs.

Taken together with the potential removal of consolidation requirements, this feels like a significant shift. A more balanced approach might be to require medium-sized groups to continue producing audited consolidated accounts (including a cash flow statement) while simplifying the subsidiary audit exemption rules.

Such an approach would preserve confidence in financial reporting while still reducing the administrative burden for groups with multiple entities. Striking the right balance between simplification and transparency will be critical.

Embracing digital

Few would argue against the move towards greater digitalisation. However, one proposal appears somewhat at odds with the consultation's wider objectives.

The suggestion that auditors should provide assurance over the taxonomy and formatting of electronically submitted accounts could introduce additional cost, time and complexity into the audit process. Even with increased automation, this risks creating new obligations at the same time as attempting to reduce existing ones.

What are the welcome changes?

Not all the proposals are controversial.

Simplifying front half content in the strategic and directors’ report (which have already been committed to in the Government’s Regulation Action Plan from October 2025) are very much welcome. Reducing unnecessary narrative reporting should help businesses focus on providing information that is genuinely useful to stakeholders.

Distributable profits

Modernising the distributable profits rules and escaping the accounting and legal merry-go-round for those who have had the joys of working through issues in this area will attest, would also be a great benefit. However, relying purely on a solvency-based regime with a director assessment that there would be no impact on going concern from the proposed distribution seems quite high risk to me.

Without a more formal framework I think we would likely continue to see a number of corporate failures where distributions have been taken out of the business in the months leading up to insolvency without any realistic prospect of their recovery.

Final thoughts

Believe it or not, that was only a whistle-stop tour. The consultation contains 60 separate questions and has the potential to reshape the UK corporate reporting framework for years to come.

The ambition to simplify reporting is absolutely the right one. The challenge will be ensuring that simplification genuinely reduces complexity without weakening the quality, transparency and trust that stakeholders rely on. From what I have seen so far, the consultation contains some very sensible proposals, but also a number that may warrant much closer scrutiny before becoming reality.