The UK’s Financial Reporting Council recently issued the results of a thematic review on Reporting by the UK’s smaller listed companies.

The review consisted of “a desktop review of 20 companies with year-ends between September 2024 and April 2025 operating in a range of market sectors.” These are the main findings noted:

• Revenue
  • Companies should ensure they have a clearly articulated accounting policy on revenue recognition, which covers all material revenue streams and is consistent with the company’s description of its business model.
  • Improvements could be made to explanations of the timing of satisfaction of performance obligations, determination of the transaction price, agent versus principal considerations, and the associated judgements.
• Cash flow statements
  • Misclassification of cash flows between operating, investing and financing is one of the most common reasons for our enquiries. This often stems from the lack of clear explanation of specific transactions and the rationale for the treatment of the related cash flows.
  • Companies should ensure consistency between the amounts disclosed in the cash flow statement and the information disclosed elsewhere.
• Impairment of non-financial assets
  • It is important that transparent disclosures on impairment reviews of non-financial assets, such as goodwill, reflect a company’s reasonable and supportable expectations about its future cash flows and market conditions.
  • Good quality reporting requires clear explanation of significant judgements and estimates, key assumptions and sensitivity analysis. This must be consistent with the narrative throughout the annual report.
• Financial instruments
  • We expect companies to disclose tailored accounting policies for more complex financial instruments, clearly describing the bases for initial classification and subsequent measurement.
  • Company specific accounting policies and transparency about the nature of financial instruments is key in understanding companies’ exposure to financial risks…

The FRC also says it found room to improve conciseness in all those areas, noting that “good quality reporting does not necessarily require greater volume.” Among the examples it provides are instances of irrelevant accounting policies being disclosed (“for example, accounting policies on financial instruments referring to classes of financial assets or liabilities that are not present in the accounts”), and disclosures relating to estimation uncertainty where, based on sensitivity analysis, there does not appear to be a high risk of material adjustment in the next year.

I doubt that any of the highlighted areas would come as surprises. Around the same time, Canada’s Alberta Securities Commission released its annual corporate finance disclosure report, most of which is presumably also based on observations of smaller companies: the scope is larger though, not only limited to financial statements. The ASC highlights four non-process-related areas, with revenue again making the cut. Another is the apparent perpetual scourge of non-GAAP measures (although the ASC has little new to say on the topic, causing one to wonder whether the issue truly deserves such continued prominence). The other two areas are forward-looking information (“While FLI can provide meaningful insight to investors, it is important to comply with disclosure requirements to ensure that investors are able to understand the basis for such disclosure and the associated risks”) and reportable segments (“During our reviews, staff noted circumstances where RIs did not provide required disclosures in their financial statements for business activities that appeared to meet the definition of a reportable segment.”)

There’s often a tension evident in regulatory and other commentary on financial reporting by smaller companies. The greater simplicity of their operations and of the attached accounting and disclosure issues, perhaps coupled with them putting fewer resources into it, makes errors and imperfections in their reporting easier to catch, basically. But at the same time, if the company is in a start-up mode, focusing primarily on building its business and maintaining liquidity, then such errors may be less important to investors: given the volatility of their activities and outlooks, one is inherently less able to use recent history as a guide to what may come next (a reason, by the way, why imperfections in the use of non-GAAP measures should be less likely to lead a careful reader astray). Against the backdrop of such considerations, regulators in both Canada and the US are looking at allowing smaller companies to report semi-annually rather than quarterly: a recent  Canadian proposal suggests that the accommodation would be available to companies with revenue of less than $10 million (among other criteria). As I wrote previously, while such dividing lines are inherently arbitrary to some extent, it’s easy to point out cases in which that threshold might create debatable outcomes. For example, a stable company with regular and barely changing revenue of $11 million (say from recurring contracts with the same handful of customers) would be ineligible to use the exemption, even though its quarterly statements might regularly fail to provide much new or decision-critical information. On the other hand, investors in a development-stage company with recurring liquidity challenges and a complex transaction stream might find six months to be a long time between financial statements…

Anyway, a general summary might be: let’s make financial reporting by smaller companies better, and then settle for less of it!

The opinions expressed are solely those of the author.