01 February 2012

Corporate reports still hold value, says ACCA study

Corporate reports are being held back by confusion over their different audiences, their complexity, and lack of timeliness, according to a new ACCA (the Association of Chartered Certified Accountants) survey of annual report users ahead of the annual corporate reporting season.

Respondents state in ACCA’s report – called Re-assessing the value of corporate reporting - that there is a need for a greater focus on forward-facing plans, risk management, and the effective integration of these and other issues into corporate reports in a more coherent way.

"For all the concerns that stakeholders express about corporate reporting, our survey strongly suggests that the annual report has not diminished in its significance for investors and other stakeholders", says Ian Welch, ACCA’s head of policy."In fact, the annual report seems to have become more important since the financial crisis, with users reviewing reports more carefully than ever. However, confusion and complexity has hamstrung reports to an extent; they could be much better than they are. Corporate reports are still documents that add value for stakeholders, but investors should be positioned as the most important audience for the report."

The survey of 500 investors, capital providers, suppliers, customers, and report preparers in the UK, US, and Canada found that:

• 50 per cent of respondents named the annual report as their primary source of information about a company
• 41 per cent said the corporate report was an easy way to assess information about a company
• 48 per cent said too much ‘promotional material’ crept into reports
• 47 per cent thought that reports were too long
• 40 per cent said reports were too general purpose
• 35 per cent felt reports are too backward-looking
• 35 per cent said reports were too complex; of this figure, 68 per cent blamed reporting standards and 61 per cent blamed legal requirements
• 26 per cent felt it was difficult to assess a company’s performance from their corporate report.

The survey also asked what information stakeholders wanted to see in reports that was not there already:

• 71 per cent thought companies should report more on potential risks that could affect their performance
• 70 per cent said the most pressing issue for companies to report on was how they intended to manage or mitigate key risks
• 59 per cent said the inclusion of social and environmental data through an integrated report would add value
• Stakeholders expressed an interest in real-time, externally assured, reporting'

"Annual reports can add real value for businesses and investors", says Ian Welch. "But, as the survey shows, there are some real issues in today’s reporting. Reports need to be simplified, they need to be written with investors in mind, and they need to be more forward-looking and evidently risk aware. Hopefully the survey provides an encouraging backdrop against which regulators, standard-setters, and companies can go about simplifying, clarifying, and adding more value to corporate disclosures."

Ian Welch concludes: "It was noteworthy that while respondents reported a drop in interest in social and environmental information – perhaps understandable in difficult economic times – they suggested integrated reporting might be a way of reviving the value of this data to report users. And it was clear that the profession has to focus attention on speeding up the provision of corporate information to users."

Full report

© ACCA - Association of Chartered Certified Accountants