Briefing / Tailoring the annual report and accounts
To be of value, the annual report and accounts document needs to provide stakeholders with the information they need without overwhelming them. In some cases, the annual report can seem like a document showcasing absolutely everything about an organisation, with the risk that key messages are lost or confused.
The document needs to be prepared in accordance with the appropriate guidance that, to some extent, dictates its content. However, these are written with the intention of producing an annual report that is easy to read and reflects the unique story of each NHS body.
This briefing considers what actions NHS bodies can do to ensure that the annual report and accounts document meets stakeholders' needs while also complying with the reporting requirements. The adoption of the new Code of governance is an opportunity for NHS providers to take a fresh look at their annual report and governance arrangements.
Introduction
A body’s annual report and accounts should provide a balanced overview of the body’s performance.
NHS bodies’ annual report and accounts are lengthy documents, usually more than 200 pages long. It is unlikely that a single team is responsible for the whole document, the finance team will prepare the accounts and some of the annual report but most of the annual report will be prepared by the communications team or corporate secretary. To be of value, the document needs to provide stakeholders with the information they need without overwhelming them. In some cases, the annual report can seem like a document showcasing absolutely everything about an organisation, with the risk that key messages are lost or confused.
Best practice in government reporting has been reviewed many times starting in 2014 with Simplifying and streamlining statutory annual report and accounts
‘The goal is government reporting that is simple, easy to read, and reflects the unique story of each organisation.’
The content of the annual report and accounts is dictated by the requirements of the Department of Health and Social Care’s (DHSC) Group accounting manual (the GAM)
Some of the content of the annual report and accounts is therefore mandatory but NHS bodies are responsible for deciding how to meet the reporting requirements. HM Treasury guidance is that the annual report and accounts should be fair, balanced and understandable. But the board should determine what that means for each NHS body and how the document can be made to look attractive while focussing on the key issues and not containing unnecessary clutter.
This briefing will look at key changes for the 2023/24 and best practice when preparing the annual report and accounts. Further details and updates are included in the HFMA's Financial reporting watching brief 2023/24 and beyond
Key messages for 2023/24
In 2023/24, there are more changes to the requirements relating to the annual report than the annual accounts.
Code of governance for NHS provider trusts
The Code of governance for NHS provider trusts
The code is principles based and sets out the foundations of good corporate governance. All NHS providers should comply with the requirements of the code, unless there is an alternative approach that would promote better governance.
Where the NHS provider has not complied with a provision they need to explain in their annual report why they have not and why they have taken their alternative approach. Where they have complied with the code, disclosure may be required to demonstrate that this is the case.
It is worth noting that the chief executive office of the Financial Reporting Council recently said:
‘Frankly, a good explanation illustrates better governance more than a situation where a board defaults to compliance with a specific code provision that manifestly doesn’t suit its circumstances but where the board lacks the confidence to make the explanation’
FRC, FRC revises UK corporate governance code, January 2024 .
Although this was in relation to the commercial sector’s UK corporate governance code, it applies equally to the comply or explain requirements of the NHS’s code.
Schedule A of the code sets out the provisions of the code that relate to the annual report. For NHS foundation trusts, NHS England has also published guidance
Taskforce on climate related financial disclosures (TCFD)
HM Treasury issued its TCFD-aligned disclosure: application guidance
TCFD recommended disclosures are included in chapter three, annex five of the GAM. In summary, to meet the phase one requirements, the annual report will need to include:
- a statement around the extent that the guidance has been complied with
- a description of the board’s oversight of climate-related issues
- a description of management’s role in assessing and managing climate-related issues.
The GAM consultation also includes a further update to wider reporting requirements around sustainability in the performance analysis with the inclusion of a requirement to provide a summary of progress regarding the delivery of green plans.
Best practice for annual reports and accounts
Take ownership
Responsibility for preparing the annual report and accounts rests with the full board and the chief executive officer. This is the NHS body’s annual report and accounts, so it is for senior management to decide what is included, how it is prepared and who is responsible.
A long annual report and accounts is not necessarily a quality document. Sometimes, boards praise preparers for the length and therefore comprehensiveness of the annual report and accounts. Focus by leaders on a well-tailored, concise annual report and accounts will help avoid unnecessarily long documents that are not focussed and include unimportant information that skew the key messages.
Senior management interest will also help with engagement with other teams that are not so closely associated with the annual report and accounts preparation and audit.
The board should seek assurance, commonly through the audit committee, that the compilation of the annual report has been well managed.
Be clear about the organisation
The annual report and accounts tells the story of an organisation. As NHS bodies work more closely together in integrated care systems (ICSs), there is a risk that the annual report and account will include information relating to the wider system rather than the organisation. This could be a particular issue for integrated care board (ICBs).
Uncertainty can be avoided by being clear about the organisation and its role in the wider system and system wide initiatives.
Stakeholders
HM Treasury's Financial reporting manual (FReM)
For NHS bodies it is not always so clear – Parliament is interested but will tend to go to the DHSC rather than NHS bodies, the regulators are also engaged but will have direct routes for the information they need, patients, employees and the local population are also stakeholders but may not look at the annual report and accounts in the first instance.
Each NHS body should consider who their key stakeholders are to focus the content of the annual report and accounts. This discussion should take place with the board as well as the teams preparing the annual report and accounts as it will determine how the document is prepared and what information is, and is not, included.
For example, the use of graphics or charts to distil information could be used to tailor the report for some stakeholders. In some cases, to satisfy the different requirements of communicating to the public versus accounting to Parliament, NHS organisations choose to publish a summary annual report with the aim to provide an easy-to-read summary of key messages for the public.
Fair, balanced and understandable
Both the FReM and the GAM are clear that the annual report and accounts should be fair, balanced and understandable. This means that the reader of the document should be able to form a view of how the NHS body has performed during the year and what has gone well and not so well.
The annual report and accounts should not focus on only the positive and neither should it include so much detail that the really important issues are difficult to identify.
In chapter two of the FReM, there are two useful flow charts that help answer the questions ‘should the information be published?’ and ‘where should the information be published?’.
The annual accounts will include the current year and prior year information but, where possible, the information included should enable the reader to identify longer term trends and trajectories.
Given the independence of non-executives and their wider knowledge, they are well placed to ensure that management has given a balanced review of the year gone by, avoiding over optimistic interpretation of results or omission of significant matters.
Take information out – consider materiality
There is a lot of required information in the annual report and accounts and there are new requirements added each year. It is always easier to include more information rather than less. This is particularly the case when starting with last year’s document and updating it rather than starting with a blank piece of paper.
This is not just the case for NHS bodies – it is something that companies are considering as well. The FRC has recently published information for boards on adopting a materiality mindset
Boards should consider materiality early in the process as this will identify what is important and what needs to be included in the annual report and accounts. It is helpful to be clear on what items need to be included in the annual report as a minimum and then, applying the principle of less is more, consider carefully the value of items added in beyond this.
The annual accounts and the summarisation schedules that are submitted to NHS England need to be consistent. This does not necessarily mean that they need to be the same – immaterial transactions that have to be separately disclosed in the summarisation schedules can be combined in the annual accounts and immaterial disclosures do not have to be made. NHS England has issued detailed guidance
In some organisations, an individual (such as the corporate secretary) will create a simple table of requirements mapped to how this has been complied with for ease of review. This can then be used to document why additional items have been included.
It is the annual report and accounts
NHS bodies will have medium term plans and programmes that do not fit within a single financial year. The annual report and accounts has to focus on events that occurred during the period so it needs to be clear when it is discussing longer term plans or events that occurred outside the financial year.
Make sure the document is internally consistent
In a document prepared by different people, it is easy for inconsistencies to creep in. This is particularly the case between the front half of the document (the annual report) and the annual accounts. Therefore, allow time towards the end of the process for a review and cross check for consistency. For example, if risks relating to a legal claim are discussed in the annual governance statement, there should be appropriate disclosure in the provisions note in the accounts. If the annual report refers to a new building, then that should be reflected in the property, plant and equipment note.
It is also important to ensure that the annual report and account messages are consistent with information produced throughout the year.
Reducing duplication and using cross references instead helps to ensure that inconsistencies are minimised.
A style guide is also helpful to ensure consistency – for example, decide at the start whether the NHS body is referred to as ‘we’, ‘the trust’, or ‘xyz NHS Foundation Trust’.
Make life easier for you and your auditors
When preparing the annual report and accounts, ensure that all requirements are met by cross referencing from the annual report and accounts to the guidance and vice versa. Where there is information in the annual report and accounts that is not required by the guidance, consider what value it is adding to the overall document.
Working papers that provide assurance to the audit committee that the annual report meets all of the necessary reporting requirements and highlights new and potentially difficult disclosures will also help auditors get the assurance they need.
It is good practice to start the annual report and accounts preparation in a timely manner. For example, in the autumn prior to the year-end, plans should be in place with regular meetings scheduled about the annual report and accounts with finance and other key individuals feeding into the document. A detailed timetable overseen by the corporate governance team, communication team and finance is good practice.
Both a debrief with auditors on the prior year annual report and accounts and planning meetings with the auditors on planned inclusions are good practice.
Look at best practice examples
There are useful analyses of best practice in annual reporting in the public and commercial sectors:
- HM Treasury, Thematic review of performance reporting, December 2023
HM Treasury, Thematic review of performance reporting, December 2023 - HM Treasury, The government financial reporting review: best practice examples in annual reporting, last updated April 2023
HM Treasury, The government financial reporting review: best practice examples in annual reporting, last updated April 2023 - NAO, Good practice in annual reporting, February 2023
NAO, Good practice in annual reporting, February 2023 - FRC, What makes a good annual report and accounts, December 2022
FRC, What makes a good annual report and accounts, December 2022
Get creative
One audit firm gave NHS bodies hard copy annual reports and accounts, scissors and tape and asked them to cut up the document, take parts out and rearrange other parts.
Consider how you will publish the document – it is no longer likely to be a hard copy publication so embed cross references into the electronic version. The document is long and will not be read cover to cover so consider how to make it easy to navigate and how to highlight the parts that you think are most important for stakeholders.
Ask board members and auditors for their views on the annual report and accounts as well as other stakeholders.
Related content
An explanation for those not involved in producing the annual report and accounts why they should take action when asked for information for it.
This paper is intended to update HFMA members on developments in financial reporting that may affect them as finance professionals working in the NHS.