Changes in corporate reporting

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We are entering a period of significant innovation in corporate reporting. The demand for change is being driven by various interested parties, including forward-thinking companies, investors, the government and regulators. According to these stakeholders, key messages are often lost in lengthy reports that are hard to navigate and contain immaterial or repetitive disclosures. Common criticisms of annual reports imply that the end result can often be unconvincing, lack cohesion and leave too many questions unanswered.

The intention of those seeking change is to improve reporting so that the information provided gives an insightful picture of corporate performance, sufficient to assess the quality and sustainability of that performance.

Several consultation documents have recently been issued by various UK and international bodies looking at different aspects of corporate reporting – financial reporting, narrative reporting and ‘integrated reporting’. The key initiatives are outlined below.

Restructuring the annual report

The Department for Business, Innovation and Skills (BIS) issued a consultation paper The future of narrative reporting in which it proposes to divide the annual report into various parts to help users find key information more easily. The new structure would include a ‘strategic report’, containing key messages about the company, and an ‘annual directors’ statement’, with more detailed information. BIS also proposes to simplify disclosure requirements by removing duplication and inconsistency, and clarifying existing provisions.

The consultation does not only seek views on the new framework but also on changes to disclosure requirements; and the inter-linked issues of audit, assurance, guidance and enforcement.

The proposal to abolish the ‘directors’ report’ and replace it with a new framework is likely to affect nearly all companies. So we urge all of our readers to join the debate. The comment deadline for the consultation is 25 November 2011. 

Integrated reporting

The International Integrated Reporting Committee (IIRC) has issued a discussion paper, Towards integrated reporting: Communicating value in the 21st century . The IIRC is proposing an ‘international integrated reporting framework’ that would enable the users of annual reports to assess the organisation’s long-term prospects in a clear, concise, connected and comparable format.

A previous two-year IIRC pilot, focussing on innovation to better integrate reporting, is attracting significant interest from companies, investors and other key stakeholders. The idea is that the process of companies experimenting and innovating with the principles and content of the IIRC integrated reporting framework will go beyond simply informing the development of the framework; it will also demonstrate the benefits for companies and investors and define emerging best practice. The comment deadline for this consultation paper is 14 December 2011.

Cutting clutter

The Financial Reporting Council (FRC) has issued a consultation paper, Cutting clutter . This paper starts a conversation about how ‘clutter’ might be removed from annual reports and how the most relevant information might be brought to the fore in the annual report, including the financial statements. For more information, see the August edition of Accounting briefing .

Financial Reporting Lab

Another FRC initiative is to bring management and investors together to innovate and shape reporting in order to meet their needs. More information on the Lab is available on the FRC website.