On 27 October 2016, the FRC's Financial Reporting Lab published a project report on business model reporting, which examines the reporting of quoted companies' business models in the annual report.
The Lab found:
- Business model information is fundamental to investors' analysis and understanding of a company, and a lack of good disclosure on business model raises concerns over the quality of management;
- As business model information provides context to the other information in the annual report, most investors want it positioned towards the front of the Strategic Report;
- Where a company operates a number of business models, disclosures of each significant business model is desired;
- Investors are looking for better natural linkage of business model information to other sections of the Strategic Report, and consistency with disclosure in the annual report; and
- Investors are looking for more detail than is currently
provided by most companies. In particular investors find
disclosures are often lacking information that answers questions
such as:
- What are the key revenue and profit drivers and how do profits convert to cash?
- Are there any key asset and liability items that support the business model?
- What is the company's competitive advantage?
The Lab report also includes examples of current good practice as well as highlighting how disclosure could be modified to provide more value to investors.
The report can be accessed here:
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