Insider Business Club: annual reports

What’s the biggest problem with annual rpeorts today?

David Christopherson, chief executive, Black Sun

We’ve come to a period of enormous change. I feel that many of our clients
are getting to grips with the new reporting environment and in some respects the
old precedence has been thrown out and new ones have been put into place.

One of the challenges we are facing is re-defining what is essential best
practice in narrative reporting going forward.

You might argue that if today we are starting an annual report from scratch
and we had never done one before, would we build them in the way that we are
building them now which is inherently building on work that has already been
done in the past.

I don’t know. The main point that I’m making really is that there has been a
lot of uncertainty, a lot of change and I think we need a bedding in process
now, to get comfortable with the new reporting environment.

We are in the process of reviewing the December year end reports that have
literally just been published and we have seen some very interesting step
changes in terms of how people are structuring their books and the content of
those sorts of things.

In one case we have a client that actually uses the director’s report to
house the full business review.

Are people reading more than just executive pay?

Andrew Sawers, editor, Financial Director

There is this argument that the annual report isn’t read, 90% of it isn’t
read and so on. I genuinely believe that, the entire annual report will have
been read by the market.

No one person may have read the whole thing cover to cover, everybody will
have their own special areas that they go straight to first.

Regulators will go straight to certain bits first, analysts, institutional
investors will go to their favourite bits. That entire document would have been

It seems to me that there is much more intellectual effort that goes into the
numbers than goes into the narrative. The numbers are about finance people,
accountants, auditors, pouring all over it so it is absolutely correct.

The narrative I think there is a certain element of it being more internally
outsourced as it were to sort of corporate affairs and corporate communications
and we mustn’t put into plain English that we are actually having a real problem
in our Malaysia operation.

There is a tendancy to sort of be less rigorous, a little more glib. Maybe
that is too strong a word, but to gloss over the real issues and risks, problems
that a company is facing.

And yet I think the narrative has to have the same intellectual rigour and
effort as the numbers.

What are the key concerns in putting a report together?

Nick Topazio, business and financial reporting specialist,

They [FDs] are concerned with the volume of material, I mean it is largely
driven by compliance in terms of the numbers in the back. In the case of HSBC it
is clearly a very, very large document.

I agree with David, the narrative content is extremely important. FDs
recognise and are more and more recognising that it is important that they have
a clear narrative thread running throughout the report.

That is important for the instances which we’ve talked about, where investors
dip in and dip out of reports, so they need to be able to quickly look at a
section, whatever section it is, and that needs to be seen in the context of the
whole business. And FDs are recognising that.

In board discussions, the boards do not just get a set of figures to look at.
They get a narrative, they get messages that float through from management. That
alignment of the external reporting more closely with management reporting which
is key.

[The annual report] is an important cornerstone of the building which is the
reporting and communication. It is not as fancy as some of the architectural
things across the building, but if you take it out, then the building is at risk
of falling down.

Chaired by Gavin Hinks

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