Directors' remuneration disclosure

 

For Small Companies – Companies eligible to adopt FRS 102(1A)

This is an area where there is an ambiguity which either leads to incorrect, under or over disclosure. The ambiguity arises due to either not being abreast with changes in the legislation or blindly following disclosures from renowned sources which are purely based on circumstances.

 

Old Statutory requirement:

Directors’ remuneration disclosure requirement was stated in Schedule 3 of SI 2008 No.408.

 

Current Statutory requirement:

Statutory Instrument 2015 No. 980 repealed paragraph 20. So small companies can take advantage of the exemption to disclose directors’ remuneration for financial years beginning on or after 1 January 2016.

In other words you may NOT disclose Directors remuneration in the Financial Statements of a company using small companies regime.

 

FRS 102(1A) Appendix C – Disclosure requirements for small entities in UK:

Directors’ remuneration requires disclosure under section 1A-Appendix C, of FRS 102 if it comprises of material transactions the small entity has entered into that have NOT been concluded under normal market conditions (paragraph 1AC.35). 

 The above clearly states that professional judgement is required in determining the circumstances.

 E.g. 1 - If a company has appointed an employee but also given the responsibility of being a director to reduce administrative burden then any salary paid to that Director would be under normal market conditions and hence not necessary to be disclosed in the accounts of a company adopting small company regime.

 E.g. 2 – It is a common practice in owner managed companies to pay a director, also a shareholder, salary up to the LE limit of NI and any additional payment in the form of dividends. Though debatable but can be considered as being done at normal market conditions and hence not to be disclosed.

 

FRS 102(1A) Appendix D – Disclosure requirements for small entities in the Republic of Ireland (RI):

Appendix D which is applicable to all entities in the Republic of Ireland has a separate paragraph for Directors, paragraph 1AD.38 & 1AD.39, which are in addition to the related party disclosure paragraph. These paragraphs do not have exemption from restriction hence companies reporting to the statutory authorities in RI may want to disclose all transactions with the Directors to ensure compliance with this UK GAAP.

 

Small Companies under Audit:

If the small company is being audited then it would be a difficult task to justify to the auditors’, whether the financial statements give a true and fair view. Further it is the responsibility of the Directors as per CA 2006 to ensure that the financial statements are not approved unless they satisfy the test of true and fair view before being produced for audit.

What should be disclosed in the financial statements also depends a lot upon the readers as well as third parties who rely on these financial statements.

 

For Medium and Large Companies –

Detailed research was conducted by the University of Portsmouth, on special request from FRC, on changes in remuneration reporting after changes to the UK Corporate Governance Code 2018 and published in May 2021. This report provides detailed analysis of the remuneration policy disclosures, current practice as well as shareholder dissent and conclusions. Readers can click on the below link to read the full report which can be helpful in formulating disclosures for your company.

https://www.frc.org.uk/getattachment/c9347fef-ac65-41f7-85e5-43723c71e448/FRC-UoP_Remuneration-Research-Report_May-2021.pdf

Caveat

Opinions expressed are those of Mr. Devendraprasad Kankonkar (Deva) as an individual and are his interpretations of the standards. It has no direct or indirect link with views expressed by regulators, such as ICAI/ICAEW, of which he is a member. This material is for general information and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for yourself as the advice may change based on your circumstances. Resemblance to information on any other site or blog would be just a co-incidence and unintentional.