Updated FRC guidance increases expectations on directors

The Financial Reporting Council (FRC) has issued updated guidance on the application of the strategic report requirements introduced into The Companies Act 2006 by 'The Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013' (the Guidance). The strategic report provides information for shareholders to assist with assessing how the directors have performed their duty to promote the success of the company. The Guidance places increased requirements on directors and sets out how directors' performance of their duty to promote the success of their company is to be assessed.

The Financial Reporting Council (FRC) has issued updated guidance on the application of the strategic report requirements introduced into The Companies Act 2006 by 'The Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013' (the Guidance). The strategic report provides information for shareholders to assist with assessing how the directors have performed their duty to promote the success of the company. The Guidance places increased requirements on directors and sets out how directors' performance of their duty to promote the success of their company is to be assessed.

This updated Guidance includes revised scoping tables, which detail the disclosure requirements for companies, qualifying partnerships and limited liability partnerships under the Companies Act 2006 in respect of the strategic report, the director's report, and the energy and carbon report. The FRC is pushing companies towards more structured, transparent and forward‑looking reporting, particularly around governance, sustainability and payment practices.

The Guidance is intended to assist UK entities generate  high‑quality strategic reports focused on the needs of shareholders and other primary users, and telling a cohesive story of the business focused on performance, position, risks and future prospects.

The FRC has updated the Guidance to reflect:

• The revised UK Corporate Governance Code 2024
• Legislative changes to directors’ report disclosures
• Developments in sustainability‑related and wider corporate reporting practice
• Improvements to structure and accessibility

The scoping tables effectively act as a compliance checklist for what “good” looks like in statutory reporting, including with respect to payment practices.

The impact

The FRC expects strategic reports to enable users to understand where the business stands today, and its future prospects, risks and opportunities. This emphasis on a forward‑looking, cohesive narrative increases potential exposure in several ways.
Statements about strategy, resilience, business model, and future performance will be scrutinised if performance later disappoints as claimants and regulators may argue that risks were downplayed, assumptions were unreasonable, or disclosures were selective or overly optimistic. As sustainability‑related reporting becomes more embedded, allegations of greenwashing, inconsistency across different reports and publications remains a potential risk exposure. Essentially, there are now clearer standards against which directors’ conduct will be judged if things go wrong.

The Guidance and scoping tables are likely to be used, implicitly or explicitly, as a benchmark in regulatory scrutiny by the FRC and Financial Conduct Authority, in investor actions and in derivative claims alleging breach of duty. Where a company’s reporting falls short, claimants may argue that directors (1) failed to provide material information, (2) misapplied or ignored established reporting expectations, or (3) did not exercise reasonable care, skill and diligence in overseeing reporting.

The updated scoping tables explicitly reflect reporting of payment practices in the directors’ report which could lead to:

1. Creditors and supply chain disputes. Transparent disclosure of payment practices can crystallise issues around late payment, aggressive working capital management and pressure on key suppliers which may, in some cases, feed into allegations of wrongful trading or failure to act in the interests of creditors.

2. Reputational and stakeholder pressure. Poor payment practices may attract scrutiny from stakeholders (including regulators and media), increasing the risk of regulatory or parliamentary attention and pressure on the board’s oversight of financial and operational resilience.

3. Distress and insolvency‑adjacent risk. Payment data may be used as a leading indicator of financial stress. Where distress follows, directors’ earlier statements on liquidity, going concern and risk management may be retrospectively challenged.

By aligning with the UK Corporate Governance Code 2024, the Guidance emphasises that governance and reporting should be integrated with strategy and risk management, and raises expectations that boards have robust processes behind the narrative disclosures. It increases the risk of claims against directors as failures in governance or risk management may be easier to link to defective reporting. The standard of what “a reasonably diligent director” ought to have known or ensured about the contents of the strategic report may be perceived as higher.

The FRC is raising the bar on how companies tell their story. D&Os insurers may want to revisit their underwriting and risk dialogue accordingly, treating the updated Guidance and scoping tables as both a warning for potential exposures and a diagnostic tool for governance quality.