Boiler plated IMSs concern experts
Concerns raised that interim management statements fail to raise red flags about companies' ability to continue as a going concern
Interim management statements (IMSs) when they were introduced, were supposed
to provide an informative update on a company’s financial health twice year
between the annual and half-year reports. But experts believe IMSs are largely
turning into an exercise in making boiler plate statements offering no great
insight at all.
That’s bad enough on its own. But if a company then goes on to issue a going
concern statement – doubts about whether a business is sustainable – there’s a
real possibility of a backlash from investors who might quite rightly argue that
a boiler plate IMS failed to raise the red warning flags.
The conclusion that IMSs have become an excuse to run out a set of hackneyed
phrases was reached after Deloitte’s latest study on the IMSs filed by a sample
of 100 fully listed companies.
Isobel Sharp, a partner at Deloitte, said: ‘In our talks with the FSA, [the
regulator] said: “going concern” is still one of the weakest areas. Companies
have still got a bit of room for improvement.’
‘It’s going to be a very interesting interim reporting season, because we’ve
already had a lot of guidance from the Financial Reporting Council on this
topic.’
IMS’s are required to provide an explanation of material events and
transactions that have taken place during the relevant period and also their
impact on the company’s financial position.
IMSs also need to give a general description of the financial position and
performance of the business during the relevant period.
Deloitte found only 2% of the sample clearly complied with all of the IMS
rules compared to 6% in 2008.
Almost a quarter (24%) of plcs failed to give any information on their
financial position. 29% did not fully explain the financial impact of
transactions and 3% missed the submission deadline.
‘The nature of the IMS is that it should be a relatively quick operation.
What would be sad is if it comes out as piece of boilerplate commentary, where
they say “Let’s just change the numbers”. Some companies are doing better, but
some IMS are quite bog standard.’
Sharp added: ‘Finding a style that suits and sticking to it is a mantra
associated with the fashion industry. But, in these early days of the IMS, it
may be wise to check that the chosen style of report is suitable.’