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ACCOUNTANCY FUTURES Re-assessing the value of corporate ... · financial reporting, corporate...
Transcript of ACCOUNTANCY FUTURES Re-assessing the value of corporate ... · financial reporting, corporate...
Re-assessing the value of corporate reporting
ACCOUNTANCY FUTURES
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Contents
2
Foreword 3
Summary 4
Introduction 6
Findings 8
Conclusion 12
ABOUT ACCAACCA(theAssociationofCharteredCertifiedAccountants)istheglobalbodyforprofessionalaccountants.Weaimtoofferbusiness-relevant,first-choicequalificationstopeopleofapplication,abilityandambitionaroundtheworldwhoseekarewardingcareerinaccountancy,financeandmanagement.
Foundedin1904,ACCAhasconsistentlyhelduniquecorevalues:opportunity,diversity,innovation,integrityandaccountability.Webelievethataccountantsbringvaluetoeconomiesatallstagesoftheirdevelopment.Weseektodevelopcapacityintheprofessionandencouragetheadoptionofglobalstandards.Ourvaluesarealignedtotheneedsofemployersinallsectorsandweensurethat,throughourqualifications,weprepareaccountantsforbusiness.Weseektoopenuptheprofessiontopeopleofallbackgroundsandremoveartificialbarriers,innovatingourqualificationsandtheirdeliverytomeetthediverseneedsoftraineeprofessionalsandtheiremployers.
Wesupportour147,000membersand424,000studentsin170countries,helpingthemtodevelopsuccessfulcareersinaccountingandbusiness,basedontheskillsrequiredbyemployers.Weworkthroughanetworkof83officesandcentresandmorethan8,000ApprovedEmployersworldwide,whoprovidehighstandardsofemployeelearninganddevelopment.Throughourpublicinterestremit,wepromoteappropriateregulationofaccountingandconductrelevantresearchtoensureaccountancycontinuestogrowinreputationandinfluence.
ABOUT ACCOUnTAnCy FUTUresTheeconomic,politicalandenvironmentalclimatehasexposedshortcomingsinthewaypublicpolicyandregulationhavedevelopedinareassuchasfinancialregulation,financialreporting,corporatetransparency,climatechangeandassuranceprovision.
Inresponsetothechallengespresentedtotheaccountancyprofessionbythisnewbusinessenvironment,ACCA’sAccountancyFuturesprogrammehasfourareasoffocus–accesstofinance,auditandsociety,environmentalaccounting,andcorporatereporting.Throughresearch,commentandeventsACCAwillcontributetotheforwardagendaoftheinternationalprofession,businessandsocietyatlarge.
www.accaglobal.com/af
re-Assessing The vAlUe OF COrpOrATe repOrTing 3
Foreword
The state of corporate reporting has become a source of increasing comment and debate in recent years. As annual reports have got ever longer, and taken up increasing resource on the part of preparers, so satisfaction levels of the users of those reports has diminished. The advent of the global financial crisis has shone an unforgiving light on the purpose and effectiveness of companies’ reports. is there still a place for the traditional annual report?
Toaddressthesequestionsandissues,wehavecarriedoutthissurveyof500reportusersintheUK,USandCanadatoprovideabaseofdataonwhichtobuildfurtherresearch.Therewerethreecategoriesofparticipants–capitalproviders(largeandsmallinvestors);creditproviders(banks,creditmanagement)andotherstakeholders(suchassuppliers,andcompanyemployees)togiveawideperspective,giventhatreportsareintendedtobegeneralpurposestatements.
Thisreportisjustthestartofwhatwillbeanongoingandin-depthdebateonthefutureofcorporatereportingfacilitatedbyACCA.Ouraim,throughdiscussionandresearch,istocreateclearandpracticalproposalsthatwillreconfirmcorporatereportingasavitalsourceofinformationtoinvestors,andtopromotebusinessconfidence.AspartofourAccountancyFuturesprogramme,wewillbecarryingoutaseriesofinitiativeswithourpartnersandkeystakeholdersaroundtheworldthatwillshedlightonthiskeysubject.
Wewouldliketothankeveryonewhotookpart.ThefindingswillinformACCA’sinitiativesoncorporatereportingandwehopetheyareofinteresttopolicy-makers,regulators,CFOs,investorsandeveryonewhohasaninterestinwheretheglobaldebateoncorporatereportingisheading.January2012
FOrEWOrd
Ifyouhaveanyquestionsaboutthisreport,pleasecontactIanWelch,headofpolicyatACCA:
T: +44(0)2070595729F: +44(0)2070595771M:+44(0)[email protected]
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Summary
Corporate reports are growing ever more complex. They are becoming longer, and richer in content. however, with the need to address various standards, the resulting reports are not always harmonious and often fail to communicate clearly. even for technical experts they can be hard to use. And the primary audience is increasingly unclear – is the report aimed at investors, both current and potential, or does it need to have a compliance role? Can the needs of both regulators and investors be satisfied by the same document?
Theseissueshaveresultedingrowingpressuretooverhaulcorporatereporting.Inrecentyearswehaveseenthegrowthofnarrativereporting,andincreasingdemandforabroadersetofnon-financialdisclosures.Attemptshavebeenmadetocommunicateriskmanagement,governance,environmentalandsocialissues,andbusinesses’longer-termstrategicplansviathereport.
Wearenowwitnessingtheemergenceofintegratedreporting,whichattemptstobringtogetherthesethemesinacoherentframework.Itseekstoconfirminvestorsastheprimaryaudience,andtocommunicatemoreeffectivelyawidevarietyoffinancialandnon-financialdisclosures.Andinthebackground,almostunremarkedupon,weareseeinginvestorsseekingmuchmoreinformationinreal-time,vianewsfeeds,pressreleases,marketsentimentandsourcessuchasbrokers’reports,quarterlyreports,andviadirectengagementwiththecompany.
prOjeCT AimsToidentifywhattherealdriversforchangeshouldbe,ACCAsetouttospeakdirectlytoinvestors,togettheirviewsonwhethertheystillvaluedtheannualreport,andwhethertheygotwhattheyneededfromit.ACCAfirmlybelievesthatinvestorsaretheforemostaudienceofthereport,andwebelievethattheirneedsmustbeplacedattheheartoffuturedevelopments.
Butgiventhatannualreportsarecurrentlysupposedtobe‘all-purpose’documents,andwillcontinuetoprovideinformationtoarangeofstakeholders,wealsosoughttheviewsofotherinterestedgroups,suchascapitalproviders,suppliers,customersandstaff.Weasked500respondents,basedintheUS,UKandCanada,whethertheystillvaluedtheinformationthereportgavethem,orwhethertheypreferredtorely
onothersources.Anddidtheyseethesituationchanginginthefuture?
Key FindingsPerhapsreassuringly,50%ofourrespondentsconfirmedthattheannualreportisstilltheirprimaryoronlysourceofinformation.However,morethanaquarterofoursample(26%)feltthatitisdifficulttoassessacompany’sperformancefromthereport.Andtherewasawiderangeofcriticismsofthereport.
• 47% thought that reports are too long.
• 35% felt reports are too backward-facing.
• 40% said that reports are too general purpose to meet their needs.
• 35% responded that they are too complex in their current form. Of these:
– 68% believed that the reporting standards that companies are required to follow were to blame, while
– 61% put it down to legal requirements.
Therewerealsomixedopinionsastowhethercompanieswerereportingbalancedandunbiasedviewsoftheirpositionandperformance.Asmanyrespondentsdisagreedasagreedthatstandardsencouragedcompaniestoprovideacorrectlybalancedviewoftheirperformance,ietoincludebadaswellasgoodnews.Andalmosthalfbelievedthattoomuchpromotionalmaterialhadcreptintothereport.Theseareworryingfindings,runningagainsttheconceptofneutralitythatmustunderpinanymeaningfulreport.
Thesurveyalsomanagedtouncovertheinformationthatiswantedbyinvestorsbutasyetundelivered,andthat,ifmeaningfullyaddressedbycorporatereports,couldaddvaluetoinvestorsandotherstakeholders.Thisinformation
providesausefulcontextforfuturedevelopments,forregulators,financeleaderswhowishtoengageinvestors,andforthepreparersofreports.
• 71%ofrespondentsthinkcompaniesshouldbereportingmoreonpotentialrisksthatcouldaffecttheirperformance.Thisisunsurprising,giventhespotlightthathasbeenfocusedonthetreatmentandmanagementofriskbycompanies,andparticularlyrelevantinthepost-crisisworld.Butsuchastrongresultcannotbeignored,andthereisclearlyanopportunityforbettercommunicationofrisk.
• 70%saidthatacompany’skeyrisksandhowtheyintendedtomanageormitigatethemwasthemostpressingissueforthemfollowingtheeconomiccrisis.Theotherareasthatinvestorsaresignificantlymoreinterestedinpost-crisisincluded:– 63%weremorefocusedonfutureplansandprospects(63%)
– 59%onkeyperformanceindicators,and
– 58%onthefinancialstatementsthemselves(58%).
• Theemergenceofintegratedreportingwasalsowelcomed.59%saidthattheinclusionofsocialandenvironmentaldatathroughanintegratedreportwouldaddvalue.
respondentsexpressedaclearinterestinmovesto‘real-time’reporting.ThisisconsistentwitharecentreportbytheWashington-basedCenterforAuditQuality,basedondiscussionsofannualreportusers,whichconcludedthat‘bythetimetheannualreportisissued,theinformationcontainedistoodatedtodriveinvestmentdecisions;itismoreoftenusedabaseline,supplementedwithadditionalanalysisbasedonmorecurrentinformationsuchasquarterlyreportsandpressreleases’.
re-Assessing The vAlUe OF COrpOrATe repOrTing 5
ACCA’srespondentsbelieveditwouldaddvalueifsuchinformationcouldbeexternallyassured,andthisposesanumberofquestionsthatneedtobefurtherexplored.Itisunclearifexternalassurancecouldbefeasiblyappliedtothefullrangeofinformationthatmanagementcontinuouslyprovidesinvestorsthroughouttheyear,suchaspressreleases,quarterlyreportsorotherannouncementstoshareholders.Itwouldcertainlyprovideachallengetotheaccountingprofessionandthecurrentauditmodel.Isthereeventhecapacityandthetechnicalmeanstomeaningfullyapplysuchanapproach?
nexT sTeps TheinformationgleanedbythesurveywillprovideACCAwithastrongplatforminitsongoingconversationswithstandardsetters,regulatorsandthebusinessesandfinanceprofessionalswhoshapeandcreatecorporatereports.Wearealsodevelopingastrongprogrammeofengagementwithinvestorsaroundtheworld,includingreports,ontherangeofviewsthatinvestorshaveinregardstothewholesystemofinternationalstandards,ofcorporategovernance,andthefutureofreporting.
Thoseinvolvedinshapingthefutureofcorporatereportingneedtotakenoticeofthesefindingsandotherdatathatsupportthesefundamentalinsights:
• investors should be positioned as the most important audience for the report, and need to be better engaged in its future evolution.
• The value of reporting to investors can and should be strengthened. This can be achieved by providing a greater focus on forward-facing plans, risk management, and properly integrating these and other issues in a more coherent way. integrated reporting shows real potential to move this agenda forwards.
• There is still a need to simplify the report – they should be pruned where possible, and presented in plainer language in places, as well as being broadened to integrate the disclosures that investors require.
Ifthiscanbeachieved,thereportwillbecomeamorevitaltoolforinvestors,andabletomorecomprehensivelycommunicatetheunderlyingfactorsrelatingtothepositionandfutureprospectsofacompany.
Finally,theissueofreal-timereportingneedstobeexaminedmorecomprehensively.developmentsintechnology,thefragmentationoftraditionalmediachannels,theemergenceofsocialandmobilemediaplatformsandadvancesinanalysistechniqueshavecombinedtocreatearichpoolofreadilyavailablebutlargelyun-assuredsourcesofby-the-minutedataforinvestors.Howcanweaddgreaterassurancetosuchchannels?Andwheredoesthisleavereportingasawholeandfutureroleofaccountants?
ACCA,throughitsCorporatereportingresearchandInsightsprogrammeandongoingengagementwithbusinesses,standardsettersandinvestors,willexploretheseandotherissues.Andbydoingsobegintoresolvewheretheseexcitingdevelopmentswilltakeusinfutureyears,andpinpointboththechallengesandopportunitiesthatlieahead.
Fundamentally,theannualreportisstillseenasadocumentwhichaddsvaluetostakeholders.However,reportingmustevolveinordertomaintainandenhanceitsvalue.
TTTSummary
SUMMAry
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Introduction
Companiesdevoteextensiveresourcesinpreparingtheirannualreports.ArecentstudybytheBlackSunconsultancyintheUKrevealedthatthe2010reportsfromFTSE100companieshadtypicallyexpandedby11pageson2009,andnowaveraged175pages,withsixcompaniestotallingmorethan300pages.yetthereisgrowingscepticismthatthereportsdeliverwhataudiencesrequire.
TheUKFinancialreportingCouncilin2011launcheda‘cuttingclutter’initiative,arguingthatthevalueofreportswasbeingreducedintheeyesofinvestorsbytheinclusionofunnecessarymaterial.‘Clutterinannualreportsisaproblem,obscuringrelevantinformationandmakingitharderforuserstofindthesalientpointsabouttheperformanceofthebusinessanditsprospectsforlong-termsuccess’itsaid.
ThiswasechoedintheUS,where,followingaseriesofhigh-levelroundtableeventsinthesummerof2011,theCenterforAuditQualitysummarisedtheviewsofparticipants(whichincludedinvestors,analysts,preparers,auditors,lawyersandothers):
‘Annualreportsareinastateof“disclosureoverload”resultingfromtheexpandingcomplexityofGAAP,aswellascomplianceandliabilityconcernsonthepartofpreparersandcounsel.Therewasaclearcallfrominvestorsandpreparersforeliminationofredundantmaterialinannualreportsthroughbettercoordinationofdisclosuresrelatedtolegalinformation,managementanalyses,auditedinformation,andimportantly,aprioritisationofriskfactors.’
Toooften,saidtheCAQreport,riskfactorsdiscussionscontained‘anythingandeverything’.ThisfindingmirrorstheUKFrC’sviewthatcompaniesfrequentlydisclosetoogeneralriskssuchasadownturnintheeconomy,ratherthanspecificrisksandhowtheyareaddressingthemwithinthebusiness.‘Webelieveitisparticularlyimportantthatdirectorsexplainclearlyhowtheyidentifyandmanageriskandwhatkeepsthemawakeatnight’saidFrCCEOStephenHaddrillin2011.
Thefirststepinidentifyingwhatexactlyinvestorsgetoutofannualreportsistorecognisethattheydonotformonehomogeneousgroup.Indeed,itisoftenassertedthatlargeinstitutionalinvestors,alongwithotherkeyfiguressuchasfundmanagers,regulators,financeproviders,analystsandbrokers,havelittleneedforthecorporatereportatall–centralplayerslikethesewouldexpecttohavedirectaccesstotheboardinordertogettheinformationtheyrequire.
Inits2011consultationwithUKmarketparticipantsontheissuesofcorporatereportingandauditing,theFrCconfirmedthis,reportingthat:‘someinstitutionalinvestorssaidthattheyplacedmoreimportanceontheassurancetheyreceivedfromdiscussionswithboardsandmanagementthanonthewordsintheannualreport.Thiswas
particularlythecasewhenitcametoassessingthequalityofriskmanagementandinternalcontrol,forwhichtheirmainsourceofassurancewasthequalityoftheboard2.’
Initsresponsetothatconsultationexercise,ACCAacceptedthattheannualreport3was‘onemeansbywhicheffectivecommunicationwithshareholdersandotherstakeholderscanbeachieved,althoughitisnottheonlyone...theannualreportshouldnotthereforebeseenasthekeytoachievinghighlevelsofshareholderengagement.’Ultimately,weneedtoassesswhatrolethecorporatereportshouldplay,andwhoitshouldbeaimedat.Ifitiswidelyfeltthatannualreportsrankrelativelylowamongusers’sources,thenshouldseriouseffortsbemadetooverhaulthem?Or,giventhatpreliminaryandinterimresults(withouttheaccompanyingfullreport)canmovethemarketsandleadtoacompany’ssharesbeinga‘buy’or‘sell’recommendation,doesthisshowthattheannualreportnowaddslittlevalue?
ACCAwantedtoestablishthefactsbehindtheassumptionsandquestions.Wealsowantedtodiscoverwhetherusersofannualreportsreadthemmorecarefullynowthanbeforethefinancialcrisis.
The cenTeR foR audiT qualiTy’s RoundTables summaRy RepoRTed ThaT ‘paRTicipanTs Recommended ThaT The full Range of sTakeholdeRs develop a shaRed vision on The appRopRiaTe conTenT of annual RepoRTs foR Today’s invesToR needs wiThouT being hindeRed by cuRRenT RepoRTing RequiRemenTs and The legal enviRonmenT.
1 Effective Company Stewardship: enhancing corporate reporting and auditing(January2011)FrC2 FinancialreportingCouncil,Boards and Risk: a summary of discussions with companies, investors and advisorsSeptember20113 Effective Company Stewardship,commentsfromACCAonthediscussionpaperfromtheFrC,March2011 www.accaglobal.com/general/activities/technical/archive_v2/subject/business/cdr1013
“iT will be of liTTle avail To The people ThaT The laws aRe made by men of TheiR own choice if The laws be so voluminous ThaT They cannoT be Read, oR so incoheRenT ThaT They cannoT be undeRsTood.”
jAmes mAdisOn, presidenT And primAry AUThOr OF The Us COnsTiTUTiOn
re-Assessing The vAlUe OF COrpOrATe repOrTing 7InTrOdUCTIOn
TIntroduction
InastudyofanalystsACCAundertookfrom2004–6therewasgeneralscepticismoverthevalueofthefullreportsasmostofwhattheyvalued/neededwascoveredbythepreliminaryannouncementstwomonthsearlier–butwewantedtodiscoverifthecrisishadputgreatervalueonthefullauditedaccounts(andexplanatorynotestotheaccountswhichdon’tappearintheprelims).
Arelatedissuewaswhetheritwouldaddvalueifthefullreportwasaudited,ratherthanjustthefinancials–wouldthisgiveaboosttothe‘value’ofthefrontendofthereport?Andwouldsuchnon-financialinformationbeboostedinimportancebybeing‘integrated’withthefinancialstatementsorwouldthistrytocaterfortoomanydisparateaudiencesandenduppleasingnoone?
Anotherkeyareawewantedtoexaminewaswhetheramoreflexiblereportingsystem,inwhichmanyversionsofthereport(enabledbyplatformssuchasXBrL)couldbeproducedtosuitdifferentstakeholders’needs,wouldanswersomeofthecriticismsofcorporatereporting.
Suchconcernshavebeengrowinginrecentyearsandin2006theCEOsofthetopsixaccountingfirmsdeclaredthecorporatereportingsystemtobe‘broken’.Theycalledforquarterlystaticfinancialreportstobereplacedby‘real-timereporting’bringinginamuchwiderrangeofperformancemeasures.Thefirmssaidthatmorenon-financialinformation,customisedtotheuser,andmoreeasilyaccessible,wouldhavetobeissuedbycompaniesaspartofaprocessofbringingcorporatereportingintothedigitalera.
Wouldthisbetherightwaytogo?Howclosetogenuine‘real-timereporting’wouldbefeasibleordesirable,andwouldexternalassurancebenecessarytogivesuchcommunicationthesamecredibilityofcurrentannualreports?
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There were few notable differences between the UK, Us and Canadian respondents and only minor statistical divergences between the three categories of participants.
Findings
The vAlUe OF The repOrT 1Halfofrespondentssaidtheannualreport(Ar)wasthemainsourceofinformationtheyusedtoassessacompany’sperformance(41%saiditwastheirmainsourceand9%saiditwastheonlysourcetheyuse.)GivenincreasingdoubtsaboutthevalueoftheArtolargershareholdersinparticular,companiescanatleasttakecomfortfromthisfindingwhentheyareputtingtimeandeffortintoproducingtheirreports.Mediareports,investorbriefingsandcompanyprospectusesarealsoimportantsourcesofinformation.
Perhapssurprisingly,only20%ofinstitutionalinvestorssaidthattheymadeuseofprelimsinassessingcompanies’performances,whichwaslessthanpreviousACCAresearchhadsuggested.Buttheremaybeanelementofconfusionaroundthisissue–aPwCreportissuedinJuly2011indicatedthatprelimswereamajorsourceofinterestforinvestors,butthatmanyofthemwronglyassumedthatthesehadbeenaudited.Thereportrightlyconcludesthatthisissueposesquestionsfortheauditprofessiononthetimelinessofauditopinionasassuranceatthatstagewouldseemtobeofbenefittoinvestors.
50%Annualreport
4%Liaisingwithboardmembersdirectly3%Liaisingwithinvestorrelationsteamdirectly
1%Preliminaryannouncement
5%Interimreport
17%Media/pressreports/Googlesearches
8%Investorbriefings/companyprospectus
9%recommendationsfrompersonalcontacts
3%Other
whaT IS The maIn SourCe oF InFormaTIon you uSe To aSSeSS Company perFormanCe?
2Thelessencouragingnewsforthecurrentreportingset-upisthatviewsaremixedontheeaseordifficultyofassessingacompany’sperformanceusingtheAr.Thebiggestproportionofrespondentssaythatitiseasy(41%),butthereisstillasizeableminoritywhosayitisdifficult(26%).AndthereareaseriesofspecificcriticismsoftheAr.respondentsaremorelikelytoagreethattheAris:• toolong(47%)• toobackwardlooking(35%)• toocomplex(35%)–thekeyperceiveddriverofthiscomplexityisthereportingstandardscompaniesarerequiredtofollow(68%)andthelegalrequirements(61%)
• toogeneralpurpose(40%).
discouragingly,morerespondentsdisagreethanagreethatinformationprovidedinthecurrentArformatisclearandconcise.Thisisworryinggiventhattheissueofclaritywasratedhighlyintermsofimportancefactorsinthesurvey.IsthisjustthepoorstateofreportingaspractisedbycompaniesoristheformatoftheAritselfcausingtheproblems?Eitherwayitisasignificantindictmentofthestateofcurrentreporting.Given
theongoingimportanceoftheArasidentifiedinpoint1above,thisisafindingofsomeconcern.
Interestingly,thesurveyalsofoundthatsincetheglobalfinancialcrisis,56%ofrespondentsanalysedArsmorecarefullythantheydidpreviously.
ThefindingthatmanybelieveArstobe‘toogeneralpurpose’reflectsacentralquestion–whoarereportsaimedatandcanonereportingmodelservetheneedsofdisparateaudiences?
ACCAhasarguedthataccountsmustgiveunbiasedinformationreflectingtheeconomicperformanceandpositionofabusiness–andingeneral,theneedsofbothinvestorsandregulatorsarebestservedbysuchanapproach.IFrSitselfhastheconceptofneutralityatitsheart,whichwebelieveistherightapproachtoensuringunbiasedreporting.
Butitmustbeacceptedthataccountingstandardsarenonethelessacauseofsomeconcern.Morethantwo-thirdsofthoserespondentswhobelievedArstobeover-complexblamedthereportingstandardsforthis.Androughlythe
re-Assessing The vAlUe OF COrpOrATe repOrTing 9FIndInGS
don’tknow
Stronglyagree–5
4
3
2
Stronglydisagree–1
0% 10% 20% 30% 40% 50%
Toogeneralpurpose
Toocomplex
Toobackwardlooking
Toolong
whaT do you ThInk abouT CerTaIn FeaTureS oF CurrenT annual reporTS?
samenumberofrespondentsdisagreedasagreedthatstandardsencouragedcompaniestoprovideacorrectlybalancedviewoftheirperformance–ieincludebadaswellasgoodnews.
Thesefindingsareperhapsnotasurprisegiventhefrequentcriticismsofstandards.ACCA’sComplexity in Financial Reporting survey4providedaclearindicationfromrespondentsthatusingIFrSisoverlyandunnecessarilycomplex.SotheIASBstillhasworktodoinensuringitsstandardsmeetusers’needsforclarity,especiallygiventheongoingconvergenceprogrammewiththerules-basedUSGAAPregime.
3Thefactthatalmosthalf(48%)thinkArsaremarredby‘toomuchpromotionalmaterial’isanotherconcern.Giventhatsuchmaterialwouldinevitablybefoundinthe‘frontend’ofthereport,
thistallieswithpreviousACCAresearchwhichhasfoundalackofproperunderstandingof,narrativereportingandwhatitwastryingtoachieve.
One2008study5revealedalackofinterestfromanalystsinanythingotherthanhardnumbers,whilea2010reportcommissionedbyACCAanddeloitte6coveringninemarketssuggestedthatwhilecompaniesweretryingtheirbesttoengageinnarrativereporting,therewasconfusionoveritsobjectivesandaudiences,andsuggestionsthatreportssufferedfrominformationoverload.
ThelatestACCAsurveyfoundthatakeyinfluenceintermsofwhetherusersfoundanannualreporteasytousewaswhetheritprovidedtherightbalanceoffinancialandnon-financialinformation,toallowthemtomakeinformeddecisions.Allthisgivesjustification
toattemptsbyregulatorstoaddresswhetheratleastthelengthofreports(ifnottheircomplexity)canbereducedbyminimisingnon-essential‘clutter’inannualreports7.
imprOving The repOrT4Intermsofwhatcanbedonetoimprovethings,asignificantproportionofrespondentsthinkcompaniesshouldbereportingmoreonpotentialrisksthatcouldaffecttheirperformance(71%).Manyregulatorswillprobablybesanguineaboutthisfinding,giventheirowncriticismsofriskreportingandtheneedtoimprove.
Thisisasubstantialmajorityofrespondentsandthisissueclearlyneedstobeaddressedbycompanies.
riskalsotoppedthelistofsubjectsinwhichrespondentsweremoreinterested
4 Complexity in Financial Reporting,ACCA,2009.www.accaglobal.com/pubs/general/activities/library/financial_reporting/other/tech-ms-com.pdf5 davidCampbellandrichardSlack,Narrative Reporting: Analysts’ Perceptions of its Value and Relevance,ACCA,2008 www.accaglobal.com/pubs/general/activities/research/research_archive/rr-104-001.pdf6 ACCAanddeloitte,Hitting the notes but what’s the tune?ACCA,2010.www.accaglobal.com/pubs/af/reporting/new/hitting_the_notes.pdf7 www.frc.org.uk/about/cuttingclutter.cfm
TFindings
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sincethecrisis–nolessthan70%saidthatkeyrisksandhowcompanieswereintendingtomanageormitigatethemwasnowwasthekeyissueforthem.
5Theotherkeyissuesthathadchangedintheirperceivedimportancepre-andpost-financialcrisiswerefutureplansandprospects(63%ofrespondents)keyperformanceindicators(59%)andthefinancialstatementsthemselves(58%).Itwasnoteworthythatanareawhichhadactuallyfallenininterestwas
socialandenvironmentalinformation,whichtallieswiththeviewthatformanycompaniesandtheirstakeholders,thiswasalwaysa‘nicetohave’inthegoodtimes,butnotoffirstrankimportanceduringadownturn.Butitisnoteworthythatintegratedreporting,eveninitsinfancy,mayprovetobeinstrumentalinreversingthedeclineininterestinsocialandenvironmentaldata.
Whenaskedifincludingsuchinformationinanintegratedreportwouldbeusefultothem,59%saidyes.Whiletherewasnoclearanswerintermsofwhatdevelopmentswouldmostimprovethestateofcorporatereporting,itdoesseemthatintegratedreportingisaninterestingareatomanyparticipants,whichconfirmsanecdotalevidenceacquiredbyACCAinrecentmonths.CertainlyACCAbelievesthatsustainabilityneedstobeattheheartofreporting.
1–3%stronglydisagree
2–24%
3–23%
4–40%
5–9%stronglyagree
1%–don’tknow
are annual reporTS marred by Too muCh promoTIonal maTerIal?
how have ThIngS Changed SInCe The global FInanCIal CrISIS?
4%–yes,Inowreadtheannualreport,whereIdidnotpreviouslydoso
18%–no,Istilluseothersources
21%–no,thepreliminaryresultsstilleffectivelyguidemyassessment
57%–yes,InowreviewtheannualreportmorecarefullythanIdidpreviously
Socialandenvironmentalpolicies
CEO’s/Chairman’sstatements
Stakeholderrelationshipmanagement
Auditreport
director’sremunerationreport
Fullnotesofaccounts
Corporategovernancepoliciesandprocedures
Adescriptionofthebusinessmodel
Financialstatements
Keyperformanceindicators
Futureplansandprospects
Keyrisksandtheirmanagement/mitigation
0% 10% 20% 30% 40% 50% 60% 70% 80%
whaT IS oF The moST InTereST In reporTIng poST FInanCIal CrISIS?
FindingsT
re-Assessing The vAlUe OF COrpOrATe repOrTing 11FIndInGS
whaT IS oF The moST InTereST In reporTIng poST FInanCIal CrISIS?
Anintegratedreportingframework,whichwouldgiveanoverviewofthebusinessmodelincludingESG(environmental,socialandgovernance)issues
Areportingmodelthatsupportstheinformationneedsoflong-terminvestors,suchaspensionsfunds
Lessfocusonshort-termdemands,egquarterlyreporting,whichhelpedtodriveshort-termbehaviour
Aninternationalcorporatereportingframework,toensurecomparability/consistencyacrossjurisdictions
Improvementsinfinancialreportingstandards
0% 10% 20% 30% 40% 50%
1–5%notatalluseful
2–14%
3–21%
4–41%
5–19%Veryuseful
IF non-FInanCIal daTa, InCludIng SoCIal and envIronmenTal daTa, waS InTegraTed wITh Company FInanCIal reSulTS, how uSeFul would IT be?
emerging issUes6respondentsexpressedinterestinmovesto‘real-time’reporting,althoughacaveattothiswasthatsuchinformationshouldbeexternallyassured.ThissupportsinitialfindingsfromACCA’sglobalseriesofauditroundtablesin2010,whichfoundthatauditorswouldhaveacrucialroletoplayinverifyingamoreregularflowofinformationfromcompanies.
Thedemandforindependentassuranceofmanagementreportswasconfirmedbyotherrecentstudies–firstly,theACCAanddeloittereport(seepage9above),whichfoundthattheusefulness
ofsuchreportswouldbenefitfromtheinclusionofanexternalauditopinion.TheCAQroundtableseriesin2011alsofoundsupportfortheideathatexternalassurancewouldbeusefulfortheinformationthatmanagementcontinuouslyprovidesinvestorsthroughouttheyearsuchaspressreleases,quarterlyreportsorotherannouncementstoshareholders.TheadventofXBrLhasledtoanincreasedinterestintheissueofwhetherreportscanorshouldbe‘customised’todifferentaudiences,butthefindingsonthisweremixed.Somerespondentsfeltitwouldbeusefultobeabletodothis,
butothersfeltthateveryoneshouldgetthesameinformation–albeitperhapswithtwoversions(onesimplerversionavailabletousersgenerally,andamoredetailedversionforanalysts).
Corporategovernanceissueshadriseninimportancesincethecrisisaccordingtotherespondents,butitwasnoteworthythattherewasonlyarelativelysmallriseininterestindirectors’pay.Giventhefuroreinthewiderpoliticalandpublicarenasaboutexecutiveremunerationsincetheonsetofthecrisis,thisseemstosuggestthatshareholdersandfinanceprovidersarekeepingfocusedontherealissuesastheyseethem.
TFindings
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Conclusion
For all the concerns expressed by many stakeholders over corporate reporting, our survey strongly suggested that the annual report had not diminished in significance for investors and other stakeholders. indeed, its importance seems to have increased since the onset of the global financial crisis as respondents are reviewing reports more carefully. This at least provides an encouraging backdrop against which regulators, standard-setters and companies themselves can go about the task of simplifying, clarifying and adding more value to corporate disclosures.
8 EffectiveCompanyStewardship:nextsteps.September2011.FinancialreportingCouncil
Howeveritisclearthatcertainissuesneedtobeaddressedinordertoaddvaluetoinvestors.Thiswillcementthereport’spositionasakeysourceofassuredinformationtothismostimportantaudience.
Thisstudyandotherrecentresearchleadstoanumberoffundamentalinsights:
• Investorsshouldbepositionedasthemostimportantaudienceforthereport,andneedtobebetterengagedinitsfutureevolution.
• Thevalueofreportingtoinvestorscanandshouldbestrengthened.Thiscanbeachievedbyprovidingagreaterfocusonforward-facingplans,riskmanagement,andproperlyintegratingtheseandotherissuesinamorecoherentway.Integratedreportingshowsrealpotentialtomovethisagendaforwards.
• Thereisstillaneedtosimplifythereport–theyshouldbeprunedwherepossible,andpresentedinplainerlanguageinplaces,aswellasbeingbroadenedtointegratethedisclosuresthatinvestorsrequire.
Asapost-scripttoACCA’ssurvey,oneofthemosteye-catchingfindingsintheUKFrCconsultationwasthat‘therewaswidespreadoppositiontotheproposalthatcompaniesshouldposttheirannualreportandaccountsontheirwebsites,ratherthanproducetheminprint...manysmallshareholderspointedoutthattheyfinditeasiertoreadandannotateahardcopyreportandtocompareitagainstothers.Oppositiontothisproposalwasnotconfinedtoprivateinvestors.Stakeholdersfromothergroupsexpressedconcernthatonline-onlyinformationcouldbealteredafterpublicationandconsideredthathardcopyreportsprovideanimportantsafeguardagainstsuchbehaviour8.’
ThisstrengthofopinionhasledtotheproposaltoscraphardcopiesoftheannualreportintheUKbeingdropped,althoughthishasbeenconsideredmorefavourablyinanumberofnationalmarkets.
ACCAagreeswiththeFrCthat‘companiesshouldgivecarefulconsiderationtothewaysinwhichtechnologycanimproveaccessibilitytoannualreports.’
Foritisdevelopmentsintechnologythathaveacceleratedthedebateonthefutureofcorporatereporting.Theonlinerevolutionhasbroughtaboutmoregenerallywhathasbeenreferredtoasthe‘democratisationofknowledge’.Anditwillbeinterestingtoseehowmovestointegratedatainasinglereportwilldevelopgiventhatitappearscontrarytoatrendof‘customisation’ofinformation.
Thedebateovermoreregularcommunicationwillcontinue.TheaccountancyprofessionshouldaddressthefindingsoftheCAQdiscussions,whichconcludedthattheannualreportcameouttoolatetodriveinvestmentdecisionsandthatitneededtobesupplementedbymorecurrentinformationsuchasquarterlyreportsandpressreleases.
Theprofessionneedstoexaminehowsuchinformationcouldbeexternallyassured.Workingintandem,standardsetters,theaccountancyprofessionandbusinessneedtoensurethatannualreportingisasuser-centricaspossible.Asoursurveyshows,theannualreportisstillseenasadocumentwhichaddsvaluetostakeholders.However,reportingmustevolveinordertomaintainandenhanceitsvalue.
are annual reporTS marred by Too muCh promoTIonal maTerIal?
20%–Largeinstitutionalshareholder
6%–Venturecapitalist/businessangel
42%–Privateinvestorwithasizeableportfolioofinvestments
32%–Smallshareholder(£1,000orless)inonecompanyorasmallnumberofcompanies
re-Assessing The vAlUe OF COrpOrATe repOrTing 13
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re-Assessing The vAlUe OF COrpOrATe repOrTing 15
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