ASB ATTACKS 'CLUTTERED' ANNUAL REPORTS
The majority of annual reports are cluttered and lack clarity according to the reporting regulator.
Delivering its verdict on how well UK companies communicate to the outside world, the Accounting Standards Board (ASB) found, while the vast majority of companies are technically compliant with regulations, they still have a long way to go until they clearly explain to people what they do, how they do it and what might go wrong.
Using a random sample of 50 firms from the FTSE 350 and SmallCap, the ASB set out to study how effectively companies communicate.
When it came to reporting principal risks and uncertainties two out of three companies were technically compliant, “but fell short of the spirit of the requirements”.
Some included generic “cut and paste” risks like terrorism or influenza. Overall, companies disclosed too many scenarios including one annual report which contained a risk-list which rambled for ten pages. Another listed 33 principal risks, which prompted the ASB to say it had, “trouble seeing how such a large number of risks could all be principal”.
Ian Mackintosh, chairman of the ASB, said listing every conceivable risk just added clutter. “A number of companies resorted to simply providing descriptions of generic risks that could be easily cut-and-pasted into many other FTSE annual reports,” he said.
It wasn’t all bad news. Almost one in ten companies were using best practice when it came to communicating non-financial key performance indicators.
Ian Wright, director of corporate reporting with the Financial Reporting Council, said it was critical to provide readers with a good understanding of a business model: “For many companies, although we understood what they sell, where they sell it and who they sell it to, generally they fell short of describing how all the pieces fit together that is, the business model,” he said. “Many of the strongest overall reports in the sample included a business model disclosure, which lead us to conclude that good business model disclosure can drive better disclosure in other areas.”
