Skip to main content

Annual reporting season – challenge of the message

Financial Reporting Brief December 2022

With the end of the calendar year fast approaching, many companies will be increasing their focus on annual reporting. 2022 may be described as an ‘annus horribilis’; with our world being shaken by tumultuous events giving rise to substantial uncertainty with regard to a wide range of economic and social factors. It is in the prevailing uncertain and challenging environment that companies will have to determine how best to deal with the judgements and estimates that emerge with increased complexity in order to provide transparent, reliable reporting to their investors and other stakeholders. Investors and others are faced with a need to form their own judgements, through all the major uncertainties, in order to make appropriate decisions on investment, allocation of capital and other economic decisions.

The headline pressures are readily apparent – evolving impacts of the Russia-Ukraine war, escalating energy supply shortages and costs, general inflationary pressures, the ongoing impacts of the COVID-19 pandemic and other macro-economic factors. How these pressures manifest themselves in terms of cost inflation, rising interest rates on foot of changing monetary policies, volatility in exchange rates, supply chain disruption, labour shortages and others create a very uncertain environment.

Coping with these challenges is and will continue to be daunting for all and will give rise to traumatic economic and societal impact. It is very unclear as to when the Russia-Ukraine war will end or, indeed, how the impact of COVID-19 will be further diluted or eradicated. However, it is conceivable that these major challenges and their consequences will be brought more under control in the coming years and that would greatly assist in stabilising the various economic factors.

It is less clear as to how the impact of climate change, and other ESG factors, will develop and manifest themselves going forward. What is clear is that the extent of damage caused, and continuing, will have huge economic and social consequences. Measures to curtail green-house gas emissions, and related factors, are no longer an option – they are imperative to ensure that future generations have a sustainable environment. The rumblings from the recent COP27 do little to allay our fears and concerns.


Annual Survey

With all that is going on, our recent publication ‘Corporate Reporting Insights 2022 – Surveying FTSE Reporting’ provides helpful insight into how companies may consider the robustness of their annual reports and improve their reliability and transparency. It highlights the need for more connectivity on purpose, people, planet, prosperity and resilience and it also considers the measures being taken in procuring assurance. Regulators and standard-setters are moving fast to mandate sustainability standards and disclosure requirements. The ultimate objective is a comprehensive corporate reporting framework with integration of both sustainability and financial reporting.

In late November, the European Financial Reporting Advisory Group (EFRAG) submitted a suite of twelve draft sustainability standards to the European Commission (EC). As a next step, the EC now has to approve the ESRS drafts or revise them itself before they are to be applied as a delegated act by companies within the scope of the Corporate Sustainability Reporting Directive (CSRD), which follows shortly after the adoption of the CSRD by the European Parliament.


Supervisors’ Reports

In recent months, the annual reports have been published of the enforcement/supervisory authorities, commenting on those areas where there is particular scope for improvement in addition to what they consider to be the priority issues for financial reporting in the coming season. These reports include those from the Irish Auditing and Accounting Supervisory Authority (IAASA), the UK Financial Reporting Council (FRC) and ESMA.

As one would expect, all three reports place major emphasis on climate-related matters, the Russia-Ukraine war and the various impacts of those on the macro-economic environment in which companies operate. The responsibility of management and those charged with governance is underlined in relation to (i) ensuring the overall consistency of the annual report, (ii) implementing and supervising internal controls, including those to prevent and mitigate cyber-security risks, and (iii) to ultimately contribute to high-quality, communicative annual reports.


Reporting Concerns

The consistency and reliability of disclosure throughout the annual report is critical. The enforcers may, for example, be expected to challenge where companies disclose commitments to reach sustainability targets without also disclosing explanations of how these targets will be reached, the plan for achieving them and the financial impacts of such targets and commitments.

Much has been written, including many articles in our Financial Reporting Brief series, on climate change, the Russia-Ukraine war and matters related. The supervisors’ reports add considerably more insight and guidance in these areas. Such major areas will be a focus of primary attention, most notably in the areas of going concern considerations, impairment of assets, expected credit losses, valuation of assets, deferred tax assets, pension scheme obligations and many others.

The Russia-Ukraine war adds an additional layer of uncertainty for many companies, particularly with regard to loss of control or significant influence. The assessment of whether this has arisen requires careful consideration of all facts and circumstances, and potentially the use of judgement. There needs to be heightened attention given to contracts where there are clauses regarding the disposal or potential disposal of operations. Where operations have been discontinued, or control has been lost, entities need to ensure that classification and disclosure requirements are appropriately complied with.

Where the impacts of the Russia-Ukraine war are significant to a company, it may be considered best practice to disclose in the notes quantitative and qualitative information on the significant impacts. This should include the judgements and assumptions applied in the recognition, measurement and presentation of assets/liabilities as well as the effects on profit and loss.


Recurring Issues

The exacerbated circumstances of the past year have given increased focus to the major issues. However, sight should not be lost of issues that tend to recur annually in supervisors’ reports. Two of the most oft-recurring areas are cash flow statements and financial instrument disclosures, with some of the areas of difficulty as follows:

  • Cash flow statements – concern and disappointment are expressed as to the number and type of errors identified – particularly with regard to classification, inconsistent application of accounting policies, absence of required disclosures, inappropriate treatment of non-cash items;
  • Financial instrument disclosures – improvements needed to disclosure of post-model adjustments to expected credit loss (ECL) models, the inclusion of all financial instruments in liquidity disclosures, the detail of the terms and conditions of bank loans and borrowings including covenants.



To ensure that investors and other stakeholders gain an adequate understanding in areas of uncertainty, it is essential that there is clear disclosure of significant management judgements and key assumptions underlying major sources of estimation uncertainty, including information about the sensitivity of reported amounts to changes in assumptions.

In these challenging times, it is particularly incumbent on companies to consider where additional information (beyond the standards’ requirements) should be included where needed to understand the impact of particular transactions, events or circumstances.

It is essential that disclosures are clear, concise and understandable and omit immaterial information.

The transparency and reliability of communication with the marketplace will bolster companies’ ability to gain confidence and continuing support.

Resources and Publications


Governance in focus — On the board agenda 2022

Our annual review of board topics will stimulate your thinking and help prepare you for the year ahead. Across the board, expectations of business are rising and it is this demanding environment which shapes the articles in this year’s publication.


Corporate Reporting Insights 2022 — Surveying FTSE reporting

Our survey of the annual reports of 50 companies from among the FTSE 350 highlights the need for more connectivity in reporting on purpose, people, planet, prosperity and resilience. We also share our findings in respect of procuring assurance.


IFRS Model Financial Statements 2022

The Model for 2022 illustrates the presentation and disclosure requirements of IFRS Standards and also contains ‘best practice’ examples.


IFRS in your pocket 2022

IFRS in your pocket is a comprehensive summary of the current IFRS Standards and Interpretations along with details of the projects on the standard-setting agenda of the International Accounting Standards Board.


IFRS e-learning website

Our IFRS e-learning platform allows external users to complete over 40 of Deloitte’s IFRS e-learnings free of charge with 6 million+ uses in recent years.


Understanding the differences between U.S. GAAP and IFRS Standards

A comprehensive 380-page publication focusing on some of the most common and significant differences that may affect financial statements when converting from U.S. GAAP to IFRS Standards and vice versa. Updated to 2022.


Corporate governance reporting highlights - areas for future focus

Key messages and expectations for further improvements in corporate governance reporting and examples of better disclosure.


IFRS Foundation Trustees' sustainability reporting initiative

Summary of continuing developments.


New IAS Plus resource page

Highlights some of the key accounting and disclosure issues to be considered by entities that may arise as a result of COVID-19 in preparing financial statements.

Did you find this useful?

Thanks for your feedback

If you would like to help improve further, please complete a 3-minute survey