S.172 Consultancy
Section 172 Statement
About s.172
Section 172 Statements are required to accompany the annual reports of all companies with a turnover of more than £36m and 250 employees, and it forces the directors to document how their strategic decision making demonstrates listening to their employees and other stakeholders, as well as documenting the business’ approach to the environment.
The caution is simple: a mere confirmation that s.172 has been considered is inadequate. The directors must explain how they have executed their duties in accordance with the Companies Act.
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s.172 requires a Materiality Assessment
What are the Section 172 Statement reporting requirements
To fulfil their section 172 obligations, directors must understand their stakeholder community. A stakeholder is any individual, group, or organisation that may be affected by or have an impact on a company’s decision, activities, or outcome.
The stakeholders of your organisation can include many diverse groups or individuals. They may influence, use, or benefit, or otherwise be impacted by your undertakings, or those who have special knowledge of the current situation, and those that will use, support, or maintain the final product or service.
By clustering stakeholders according to common needs, your list reduces to a more manageable length, increasing the efficiency and impact of your efforts to meet the right groups’ needs.
Your materiality assessment weighs the topics from a dual materiality standpoint, which recognises the difference between material topics of importance to your stakeholders vs. those of primary importance to the business. We will share an example materiality assessment when we explore this with you.
In this light, you can see that your stakeholders extend far beyond your management, employees, and investors, and extends through to those who:
- could be affected by your operations?
- could be affected by your marketing?
- could have an interest your success?
- might have a financial interest/stake?
- approves any sources of funding?
- sets the vision/goals?
- approves strategic changes?
- will use your end product?
- will service your end product?
Our experts will be pleased to explore these criteria with you in greater depth.
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s.172 is no “tick box” accountancy exercise
What is included in an s.172 Statement?
Within a company’s strategic report, the Section 172 Statement is required to be a distinct statement. Additionally, it needs to be posted on your company’s website.
Because it is anticipated that this will be tailored to the company, the law itself does not specify the information or level of detail that must be included in the statement. However, general guidance from the Financial Reporting Council (FRC) and the Department for Business, Energy, and Industrial Strategy (BEIS) suggests that the Section 172 Statement should typically contain details on the following:
- The matters, things, and parties that the directors think are important for adhering to section 172(1)(a)-(f), along with their reasoning.
- The techniques the directors have employed to interact with stakeholders and comprehend the problems they must take into consideration.
- How those circumstances affected the company’s choices and strategies throughout the year.
As a result, it is unlikely that a straightforward declaration that the directors have complied with section 172 or a general outline of the governance procedures will be deemed sufficient to satisfy the legal requirement. In particular, the third bullet suggests that the statement should be updated yearly and should make reference to issues that have received board attention throughout the year.
Our experts will be pleased to explore these criteria with you in greater depth.
Ready to go, or in a rush? Book a meeting today – click here.
