FDs urged to improve narrative reporting

At an ACCA briefing on narrative reporting, Ken Lever, the finance director
of Tomkins PLC and the chairman of the Hundred Group financial reporting
committee, said that the introduction of IFRS had made accounts more difficult
to understand and that narrative reporting was needed to explain this

‘The new financial reporting model is more complex and less understandable.
Narrative reporting is needed by shareholders because it provides important
information that is not in financial reports,’ Lever said.

His views were echoed by Peter Montagnon, director of investment affairs at
the Association of British Insurers, who said that narrative reporting had
become essential for institutional investors, given the complexity of IFRS.

‘The new accounting regime is complex and difficult to understand. We are
more mystified and blown away by IFRS with each new day. Narrative reporting
needs to stay to explain this, so that investors can understand what is going on
in businesses,’ Montagnon said.

He said the importance of narrative reporting extended beyond explaining the
impact of IFRS, and was a crucial for providing an accurate insight into a

‘Investors need to know what is driving a company, from a financial and
non-financial perspective. Investors need to be provided with meaningful
reports, not just numbers on spreadsheets, in order to understand how boards are
approaching issues,’ Montagnon said.

Mark Goyder, the director at business research group Tomorrow’s Company, said
that narrative reporting would also help to prevent corporate fraud.

‘Narrative reporting provides less opportunity for directors to hide the bad
news and is an essential part of a good regulatory framework,’ Goyder said.

Montagnon agreed, saying that good narrative reporting was ‘the anti-node of
false information’.

Lever, however, said there was concern that companies that provide narrative
reporting, either through an operating and financial review or a business
review, would use the document to emphasise the good aspects of a business while
neglecting disclosure of negative news.

‘There needs to be an even handedness in narrative reporting. It is not just
an opportunity to trumpet good news. There needs to be a fair balance between
the good and the bad,’ Lever said.

Montagnon said investors wanted companies to move away from ‘glossy corporate
social responsibility reports’ and deliver reports where directors discussed
material information.



There may be more trouble ahead for software developer iSoft after it was
reported that Accenture was considering using another supplier for its £12bn
upgrade of the NHS’s IT infrastructure.

Accenture’s chief executive, Bill Green, told analysts after its
third-quarter results that it was ‘watching the iSoft situation closely’ and
that the company had a ‘series of alternatives that we can take forward’. iSoft
has lost about 80% of its market value after a series of profits warnings and
being forced to restate its previous accounts to reflect a change in its
accounting policy.

Carphone Warehouse chief financial officer, Roger Taylor, has made £3.2m
after selling one million shares in the company. Taylor sold 600,000 shares at
320 pence per share, and also exercised options and sold a further 400,000
shares at the same price, the company said in a statement. The group, the
biggest mobile phone company in Europe, is valued at £2.8bn.

Plans to split WH Smith into two arms will create a second board team and a
new public listed company. Its news distribution business will be renamed Smiths
News plc, while retail will be named WH Smith plc. Alan Stewart becomes group FD
of WH Smith, while Smiths News FD Alan Humphrey effectively retains his role.

Chris Odom, the finance director of London property investment company
Derwent Valley, pocketed £536,760 after selling off 35,500 shares at a price of
1,512p each. He was not the only senior director to sell off stock in the
company, as directors Paul Williams and Simon Silver, as well as managing
director John
Burns disposed of stakes .

In the 2005 financial year Derwent Valley reported a 65% increase in pre-tax
profits from £91.1m in 2004 to £150.4m in 2005.

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