How Do Companies Act? Annual reports, Strategic reports, Director's reports and Sustainability reports

Existing legislation on inclusion of information on social and environmental issues in Company reporting does notprovide an adequate guarantee that the information reported is material or complete. This legislation is presentin the Companies Act 2006, and was recently updated in the Companies Act (Strategic Report and Directors ReportRegulations) 2013.This means that investors will find it difficult to use existing data to inform decisions, even as the demand for this typeof information is increasing. The solution is to amend the Companies Act to incorporate a necessary requirement forassurance of non financial impact information. Directors are currently required to provide a statement asserting that shareholders have the information necessary to assess company performance, business and strategy. The scope of the financial audit is to report on whether these statements are inconsistent with the information that theauditors have acquired in the course of performing the audit. This scope should be extended to requiring assuranceon the materiality and completeness of the information regarding the wider impact of the company's operations.Shareholders and other stakeholders would then be able to use this information in their investment decisions. In themeantime, examples of discrepancies in Company reporting can be raised with the Financial Reporting Council (FRC).The first section explores issues arising from current approaches to reporting on social and environmentalissues. The second focuses on related current legislation in the Companies Act and how limitations create challengesfor reporting useful information. The third section sets out the increasing demand for information on social andenvironmental issues as evidence of how important this social and environmental information really is. The fourthsection highlights the importance of audit in standardising information and ensuring it is useful, and examines thecurrent provision for auditing the social and environmental information. It concludes that there is a critical gap incurrent legislation which will restrict the use of information despite its growing importance. The options for addressing this gap are limited but we believe that the statutory audit requirements should be extended to cover materiality decisions relating to social and environmental information