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ACCA on corporate reporting

Andrew Leck, head of the Association of Chartered Certified Accountants UK, looks at the current state of corporate reporting.

Corporate reporting season is upon us again. It is one of the best opportunities companies have to attract investors. Celebrating their achievements from the past 12 months and laying their accounts bare for
everyone to see. But in a post financial crisis world do these reports meet the needs of both the companies and their investors?

Does ACCA believe there is a problem with the current standards of
reports?

It’s not just ACCA that would like to see the current system changed. In 2006 the leaders of the biggest six accounting firms declared that the reporting system was ‘broken’. They called for quarterly static financial reports to be replaced by real-time reporting, using a much wider range of performance measures to bring the process of corporate reporting into the digital age. Of course since then we have seen the financial crisis and the debate about corporate reporting isn’t currently at the top of many organisations agenda but that doesn’t mean it is not an important issue.

What do investors think about the current reporting regimes?

ACCA has surveyed 500 investors from the UK, USA and Canada to see how they perceive the usefulness of annual reports after the global financial crisis. Companies may find it reassuring that 50% of respondents still named the annual report as their primary, or indeed only, source of information about a company. However, there were criticisms, 47% said they were too long, 40% too general purpose to be useful; 35% felt they were too backward looking and another 35% said they were too complex. So clearly while investors still use the annual reports there are significant problems. It is also interesting that of the 35% who thought they were too complex; two thirds of them blamed the reporting standards and legal requirements. In total more respondents disagreed than agreed that the information provided was clear and concise.

Given these problems and the increasing availability of information from other sources are corporate reports still needed?

Despite the problems we firmly believe that companies should still be required to produce annual reports, and that is backed up by our survey of investors. Also annual reports are required by law and the financial information they contain has to be signed off and agreed by external auditors, so they are still hugely important documents, although there clearly needs to be changes.

What would ACCA like to see corporate reports look like in the future?

Our survey showed, overwhelmingly, 71% want to see more reporting on areas of risk. This is unsurprising given that these were investors who have just been through a financial crisis. This view is also backed by the Financial Reporting Council who has put this to the top of their agenda. We would also like to see more ‘emerging issues’ included. A move toward more integrating would be very helpful, a report that not only includes financial information butalso look at future risks, social and environmental issues. We look forward to a new integrated reporting framework from the International Integrated Reporting Council by the end of 2013. A move to more timely information is favoured by most and would bring us closer to the aspirations of the 2006 call. In the meantime some simple steps could be taken; investors should be repositioned as the primary audience for these reports and be better engaged in it evolution. Secondly, more emphasis on risk and forward looking information is needed. And lastly a determined effort to prune and simplify annual reports would help all stakeholders, including the companies themselves.

This was posted in Bdaily's Members' News section by Ray Allger .