Financial position and prospects procedures (FPPP) are the procedures that give a company's directors a reasonable basis to make proper judgements, on an ongoing basis, about its financial position and prospects. Before a UK listing, the directors are expected to show that these procedures are in place and working.
FPPP is UK practice. On the Main Market it sits within the sponsor regime; on AIM, the Nominated Adviser typically expects comparable work. The work typically produces two private documents: the directors' board memorandum and the reporting accountant's report.
For a scale-up, the prospects the board must judge rest on intangible assets: customer retention, the platform, key people and data rights. This article explains what FPPP involve, what the reporting accountant does, and how board reporting can cover the assets behind the forecast.
FPPP are the procedures that give the board of directors a reasonable basis to make proper judgements, on an ongoing basis, about the company's financial position and prospects. The emphasis falls on the directors' own judgement. The procedures are how the board knows where the company stands and where it is heading.
They exist because a listed company must judge its position and prospects and keep the market updated on them. Once admitted, the board needs to know how trading compares with what the market expects, and that depends on information it can trust, delivered on time.
The reporting accountant, the independent accounting firm the company appoints for the listing, typically reports on the procedures. The company prepares; the reporting accountant reports.
Financial position and prospects procedures (FPPP) are the procedures that give the directors a reasonable basis to make proper judgements, on an ongoing basis, about the company's financial position and prospects. FPPP is UK practice for listings on the London Stock Exchange.
What is required depends on the venue. On the Main Market the requirement runs through the sponsor; on AIM, through the Nominated Adviser (Nomad).
On either venue the substance is the same. The board must be able to show how it knows the company's financial position and prospects, and the sponsor or Nomad looks for evidence that it can.
The directors typically prepare an FPPP board memorandum recording the procedures and any changes planned before admission. Both Main Market and AIM companies typically prepare one. It needs considerable preparatory work, because it has to describe how the finance function and the board actually operate, as well as what will change.
The procedures it records typically cover timely interim and year-end reporting, periodic trading updates, budgeting and forecasting that supports managing market expectations, management information and KPIs, cash and working capital monitoring, and the financial systems and controls, with the governance behind them.
| Area | What the memorandum records |
|---|---|
| Reporting calendar | Interim and year-end reporting, and periodic trading updates |
| Management information | What the board receives and the contents of the board pack |
| KPI definitions | How each key performance indicator is defined and calculated |
| Budgeting and forecasting | The budgeting and forecasting process, and how forecasts are compared with actuals |
| Cash and working capital | How cash and working capital are monitored |
| Financial systems and controls | The systems that produce the numbers and the controls around them |
| Board and committee oversight | How the board and its committees review financial information |
| Changes before admission | The improvements the directors plan to make before admission |
The procedures must be documented, approved and communicated, and they must work in practice. A memorandum that describes procedures nobody follows gives the board no real basis for judgement.
The reporting accountant typically reports on the procedures in one of two forms.
The scope is agreed between the reporting accountant, the company and the sponsor or Nomad. Whichever form is chosen, the division of responsibility holds: the company prepares; the reporting accountant reports. The directors own the procedures and the memorandum, and the reporting accountant examines them. Neither the memorandum nor the report is published.
The FPPP report is one part of the reporting accountant's work for a listing. It sits alongside the long-form report and the working capital report, which supports the directors' statement on working capital, and, where required, the accountant's report on the historical financial information. The same people and systems produce the evidence for each, so the reports should tell a consistent story.
Two of the areas the procedures cover bear most directly on prospects: key performance indicators and budgeting and forecasting. Each KPI should mean the same thing in every report. Forecasts, whatever the growth forecasting method, should be compared with actuals, so the board can see how far it can rely on them.
For a scale-up, the forecast itself rests on intangible assets. Revenue from existing customers depends on customer retention; delivery depends on the platform; execution depends on key people; some new products depend on data rights. When the board judges prospects, it is in effect judging those assets.
An illustrative software scale-up forecasts most of its growth from existing customers. Its financial KPIs show recurring revenue and churn. Its board reporting also tracks the assets behind them: customer retention by cohort, the state of the platform, cover for key person risk in engineering, and the licences behind its data. When a forecast assumption is questioned, the board can point to the asset that produces it.
Board reporting that also tracks the key assets, and links them to the forecast, strengthens the board's basis for judgement. This is good practice, not a rule. One way to make the link is a value bridge, which connects each forecast driver to the asset that produces it and the evidence for that asset; see the equity story behind your intangible assets.
The findings below illustrate the gaps an FPPP review can raise. Each is easier to close before the reporting accountant starts than during the process. For the general approach when an issue surfaces, see our FAQ on what to do if due diligence uncovers an issue.
| Finding | Fix |
|---|---|
| KPIs are defined differently in different reports | One KPI dictionary, used in every report |
| Forecasts are not compared with actuals | A monthly variance review |
| The month-end close is slow | A close timetable with named owners |
| Procedures are known but not written down | A documented procedures manual |
| The finance function relies on one person | Cover and documentation |
| The board pack misses the key non-financial drivers | Add asset and driver indicators |
Engaging advisers late and weak project management across workstreams are commonly cited pitfalls. FPPP touch finance, systems and the board at once, and a gap found late has to be closed against the listing timetable.
Preparation is the company's work, not the reporting accountant's. Five steps put the procedures in order before the reporting accountant begins.
For the wider workstreams around these steps, see our IPO readiness checklist, and for how the listing price is set, IPO valuation methods.
Record how reporting, forecasting, cash monitoring and board oversight work today, including what is done but not written down.
Draft the structure of the board memorandum at the start, so gaps show up while there is time to close them.
Typically the month-end close, the KPI definitions and the variance review that compares forecasts with actuals.
Operate the procedures before admission, so the board relies on them in practice and the memorandum describes what actually happens.
Agree with the reporting accountant and the sponsor or Nomad what the FPPP report will cover and which form it will take.
FPPP concern the board's basis for judgement, and for a scale-up much of that basis is the intangible assets behind the forecast.
In Opagio Intangibles, co-branded reports bring the Opagio Value Drivers Register™ and the asset valuations from the Asset Valuator to the board, adding the intangible drivers to board reporting. The register is a standing record across Opagio 12, so the picture the board sees can be maintained rather than assembled for the listing.
For the wider exit picture, see Opagio for exit readiness.
Opagio is not a forecasting or management-accounts system and does not prepare FPPP documents. The directors own the procedures and the board memorandum, and the reporting accountant prepares its report.
Bring the register and the asset valuations to the board, so the assets behind the forecast sit alongside the numbers. Book a demo of Opagio Intangibles.
Financial position and prospects procedures (FPPP) are the procedures that give a company's directors a reasonable basis to make proper judgements, on an ongoing basis, about its financial position and prospects. They typically cover reporting, trading updates, budgeting and forecasting, management information and KPIs, cash monitoring, and financial systems and controls. FPPP is UK practice.
No. Neither the directors' FPPP board memorandum nor the reporting accountant's FPPP report is published. Both are private documents prepared for the listing, and neither appears in the prospectus or admission document.
Usually, in practice. On AIM, the Nominated Adviser typically expects work comparable to that on the Main Market, and a board memorandum from the directors. The Nomad's requirements shape what the reporting accountant delivers, and the scope is agreed between the reporting accountant, the company and the Nomad.
Tony Hillier is Chairman of Opagio. He specialises in valuation, due diligence, accounting and structured finance, and previously worked at NM Rothschild and GEC Finance. Learn more about our team.
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