Annual reports slated for clutter and lack of clarity

Ian Mackintosh, ASB

The majority of annual reports are cluttered and lack clarity according to
the reporting regulator which today delivered its verdict on how well UK
companies communicate to the outside world.

The Accounting Standards Board (ASB) and the Financial Reporting Council
(FRC) today released this report on narrative reporting.

The report 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

In some cases, generic “cut and paste” risks were included 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
to 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.
When it came to talking about trends, one in two companies resorted to using
“bland statements” with little context, according to the study.

It was acknowledged, however, the area has historically been a struggle for
companies and there was confusion on whether trends should refer to the macro
environment or company specific factors.

There were some highlights. Almost one in ten companies were using best
practice when it came to communicating non-financial key performance indicators.

Ian Wright, the director of corporate reporting with FRC, 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.”


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