1.22 The notes send readers to the directors' report for the group's capital management objectives, but that report states none
UK Company C · an AIM-quoted scientific instruments group · Regulator-style question
In brief
Note 24 says the group's capital management objectives [wording masked]. The directors' report describes interest-rate, liquidity, credit, currency and cash-flow risks, says [wording masked], and in its going concern section gives the leverage and interest-cover covenants and adjusted net debt; it does not state the group's objectives, policies or processes for managing capital. The nearest statement of an objective, a commitment to 'a prudent gearing position' with gearing slightly below [n] times, is [wording masked], outside the audited financial statements. Both years use the same cross-reference.
The evidence, as filed
Screenshot withheld to protect the company’s identity: Annual Report 2025, page 90; Annual Report 2024, page 88; Annual Report 2025, page 56; Annual Report 2025, page 87; Annual Report 2025, page 21. Their wording or layout could lead back to the company even with names and figures masked; the evidence list below records what each page shows.
What the report shows, and what the rule requires
| What the annual report shows | What the rule requires |
|---|---|
| What the annual report shows Note 24: capital management objectives '[wording masked] [n]'. The directors' report gives sources of finance, the covenants and adjusted net debt, but no capital-management objectives, policies or processes; the gearing commitment is [wording masked]. | What the rule requires In the notes (or in a part of the report properly incorporated into them): what the group manages as capital, its objectives, policies and processes and how it is meeting them, summary quantitative data, any changes from last year, and the covenant requirements and compliance (already in note [n]). |
What we checked: Note 24 cross-reference in both reports; the directors' report risk and going concern sections; note [n] covenants; note [n]; the Chief Financial Officer's report; the whole report for capital-management, gearing and leverage wording.
The rule
IAS 1 Presentation of Financial Statements, paragraph 135(a)
Version relied on: UK-adopted international accounting standards (UK Endorsement Board), as in force for financial years beginning in or after January 2025
The accounts must give qualitative information on the entity's objectives, policies and processes for managing capital, including what it manages as capital.
Why it applies here: The cross-referenced location does not contain the capital-management disclosures.
Why it matters
Readers following the cross-reference find risk policies and covenants but not the capital-management objectives the note promises.
Exposure
A question; the information may be considered given across several places.
Our workings
both reports' note [n] cross-refer capital management objectives to the directors' report. The directors' report's 'Financial risk management objectives and policies' section covers five risks and says the policies are unchanged except as stated; under interest rate risk it says [wording masked], and its going concern section sets out the two covenants and adjusted net debt. Note 22 gives the covenants and states compliance throughout the year. The Chief Financial Officer's report, part of the strategic report, says the group remains committed to a prudent gearing position and that gearing was slightly below [n] times. Inference, set against the IAS 1.135 items (extra workings): the external requirements and compliance are given in the notes; what is managed as capital, summary data and how objectives are being met are given only in part, and partly outside the financial statements; no capital-management objective, policy or process appears at the place the note points to. Whether the directors regard these pieces together as meeting IAS 1.134, and whether material in the strategic report can stand in for the notes, are matters for the board and the auditor.
| Requirement | Where in the 2025 report | Status |
|---|---|---|
| [n](a)(i) what is managed as capital | Directors' report: '[wording masked]' | Partial |
| [n](a)(ii) external requirements and how incorporated | Note 22 covenants; directors' report going concern | Given |
| [n](a)(iii) how objectives are being met | Chief Financial Officer's report: 'prudent gearing position', gearing slightly below [n] times (outside the notes) | Partial, outside the notes |
| [n](b) summary quantitative data | Adjusted net debt in the directors' report and the Chief Financial Officer's report; borrowings in note [n] | Partial |
| [n](c) changes from previous period | Directors' report: risk policies 'unchanged from previous years' (risk policies, not capital) | Partial |
| [n](d) compliance with external requirements | Note 22: in compliance throughout the year | Given |
Management’s best defence, and our reply
The company could reasonably say that the elements IAS 1.135 asks for are present across note [n] (covenants and compliance), the directors' report (sources of finance, covenants, adjusted net debt and unchanged policies) and the Chief Financial Officer's report (the prudent gearing commitment and gearing of slightly below [n] times), and that a short, combined description is proportionate for a group of this size. That is a defensible reading, so this is put as a question. The open point is that the note's cross-reference points to a section that does not itself state capital-management objectives, and the one objective given sits in the strategic report, outside the audited statements.
The fix
- Add to note [n] a short capital-management paragraph: 'The Group manages as capital [its equity and adjusted net debt of £x m]. Its objective is [the objective the Board applies]; [how it is monitored, e.g. against the gearing covenant]. There were [no] changes in approach during the year, and the covenants were met throughout the year (note [n]).'
Question for the company
Where in the Annual Report are the group's objectives, policies and processes for managing capital and the description of how it is meeting them (IAS 1.134-135)? If the note's cross-reference is meant to cover the directors' report's risk and going concern sections, or the Chief Financial Officer's gearing statement, which passage is it, and is that passage within the audited financial statements?
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | The notes cross-refer capital management objectives to the directors' report | Document | Annual Report 2025, page 90 |
| 2 | The only description of capital in the directors' report, under interest rate risk | Document | Annual Report 2025, page 56 |
| 3 | Covenant compliance is given in note [n] | Document | Annual Report 2025, page 87 |
| 4 | 2024 report: the same cross-reference | Document | Annual Report 2024, page 88 |
| 5 | The directors' report says its risk policies are unchanged; it does not refer to capital | Document | Annual Report 2025, page 56 |
| 6 | The directors' report going concern section gives the covenants | Document | Annual Report 2025, page 56 |
| 7 | The only statement of a capital objective is [wording masked], outside the notes | Document | Annual Report 2025, page 21 |
Absence check
- Document
- Annual Report 2025
- Where it would appear
- Financial risk management objectives and policies
- What is missing
- a statement of the group's objectives, policies and processes for managing capital and how it is meeting them
- Pages looked at
- p.13-23 (Chair's statement, Chief Executive's and Chief Financial Officer's reports, business model), p.56-57 (directors' report), p.87-95 (notes 22-28), p.102 (parent company basis)
- Result
- 'capital management' hits p.15 (working capital management), p.90 (the cross-reference itself) and p.102 (the parent company's exemption from these disclosures); 'gearing' hits p.13 (dividend policy 'prudent approach to gearing'), p.21 (Chief Financial Officer's report: gearing slightly below [n] times and the prudent gearing commitment), p.23 (business model: borrowing up to [n] times EBITDA), p.61 (auditor's discount-rate work) and p.87 (note [n] covenant); 'leverage' hits p.15 (operational leverage), p.21 and [n] (covenant and margin), p.23 (business model wording) and p.56 and [n] (going concern covenant); none states capital-management objectives, policies or processes in the directors' report or the notes. 'managing capital', 'manages as capital' and 'capital structure' have no hits.
Prepared by Pramanex from the company’s published annual reports, without the company’s involvement, to show how an annual report review reads. The company is not named, and nothing on this page is a statement about any identifiable company. Observations are not an audit, review or other assurance engagement, and not legal advice. A regulator-style question is a question, not a conclusion.
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