The Financial Reporting Council has urged company boards to take greater ownership of materiality decisions as annual reports become longer, more complex, and harder for investors to navigate.
New guidance from the regulator calls on companies to concentrate disclosures on information capable of influencing investment decisions, rather than allowing reports to accumulate immaterial detail in response to expanding rules and perceived compliance risk.
Directors, audit committees, finance teams, and report preparers should treat materiality as a company-specific judgement, the FRC said. Information relevant to one organisation may not be significant to another, even where both operate under the same reporting requirements.
Mark Babington, executive director of regulatory standards at the FRC, said: “Annual reports should be used as a communication tool, not a compliance checklist. We want to encourage preparers to engage with their investors and challenge themselves on what disclosures tell the most coherent story of their business.
“Materiality is not about disclosing everything; it is about disclosing what matters. Companies should be confident in exercising judgement and focusing reporting on information that informs investor decisions and avoiding immaterial disclosures that can reduce clarity.”
Annual reports have expanded as companies respond to new accounting standards, governance codes, climate requirements, remuneration disclosures, principal risk reporting, cyber considerations, and expectations surrounding workforce and social impacts.
Greater volume does not automatically create greater transparency. Lengthy reports can obscure the assumptions, risks, and performance indicators that investors need, particularly when similar wording is repeated from year to year or duplicated across several sections.
Boards often regard additional disclosure as the safest response to uncertainty because removing an item may attract questions from regulators, auditors, advisers, or investors. Responsibility for the final materiality judgement can also become dispersed, allowing each contributor to add information without deciding what could be removed.
That caution carries a substantial operating cost. Finance, legal, sustainability, communications, and investor relations teams can spend months assembling annual reports, while auditors examine an expanding range of narrative and quantitative material. The burden is particularly heavy for companies managing several reporting regimes across multiple jurisdictions.
Artificial intelligence may help teams search, reconcile, and draft disclosure material, but easier content production could make reports longer unless boards impose clear limits. Directors will still need to determine whether an item deserves inclusion and whether automated language accurately represents the company’s position.
The difficulty is increasing as financial and sustainability reporting become more closely connected. Climate risks, transition plans, nature dependencies, supply chain exposures, and workforce measures now sit alongside conventional financial statements.
International sustainability standards are already bringing nature metrics into the corporate reporting framework, extending the evidence that boards may need to assess and explain.
Materiality also forms part of effective governance. Investors expect directors to identify risks capable of affecting strategy, cash flow, asset values, financing, or long-term resilience. Generic language can suggest that priorities have not been established, even when every formal requirement has technically been addressed.
Concise reporting therefore depends on stronger internal decisions rather than fewer controls. Companies need agreed thresholds, evidence of investor engagement, clear ownership, and an audit trail showing why information was included, combined, relocated, or removed.
Different stakeholders may still require different levels of detail. Investors, regulators, employees, lenders, suppliers, and campaign groups do not always ask the same questions, and information considered immaterial to the financial statements may remain relevant elsewhere.
Digital reporting could eventually allow users to navigate several layers of information without placing every disclosure in one document. Until then, preparers must reduce duplication while retaining enough detail for readers to understand performance, risk, governance, and future commitments.
The FRC has not removed any existing disclosure obligations, but it has given boards stronger support for exercising judgement. Companies that respond effectively will need to redesign reporting processes around relevance and coherence from the beginning, rather than attempting to reduce page counts at the end of an already crowded production cycle.
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