Effective reporting – are you in tune with the needs of your stakeholders?

Many changes have taken place to the UK reporting model in the past two years through the introduction of International Financial Reporting Standards (IFRS) and more recently the Business Review. Given the increasing complexity and length of financial reports, and that many argue non-financial and contextual information has become crucial to understand business performance, it appears that the legislation could not have arrived at a better time. 

However, how have companies responded to this and has the Business Review had a positive impact on the quality and accessibility of information reported by the UK’s top companies?

The new legislation has undoubtedly prompted real improvements in narrative reporting over the past 12 months, yet there are also areas that could be enhanced further. This is supported by a recent PricewaterhouseCoopers survey, entitled ’Business Review: has it made a difference?’ which takes an in depth look at the reporting of the FTSE 350 companies.

The survey indicates there is growing recognition by companies that corporate reporting can be used as a competitive communication tool. Encouragingly, 75% of companies currently disclose their KPIs and 75% clearly set out what they consider to be their principal risks and uncertainties.  Similar research conducted last year (albeit when the Business Review was not compulsory) showed that these figures were only 20% and 22% respectively.

There was also positive news around companies’ disclosure of strategic priorities with 93% of companies providing some disclosure around their strategic objectives.

However, while the Business Review has undoubtedly helped management report a more cohesive and balanced assessment of performance, it also poses some potentially difficult challenges. The research reveals there is room for improvement in the quality of information reported, not just in the topics covered, but the provision of a forward-looking orientation and how strategic priorities align with key resources, management actions and KPIs.

Indeed, only 35% of companies support their strategic statements with qualitative or quantitative targets. In addition, only 64% align some, or all, of their KPIs with their strategic priorities and these are invariably related to financial measures.

In terms of non-financial elements of strategic reporting, companies identified people and customers as key to strategic success more frequently than any other resources, although of those that did less than half included relevant KPIs. And interestingly, 83% include a specific corporate responsibility (CR) section in their annual report, but only 17% identify aspects of CR as strategic priorities. 

The Business Review clearly offers companies significant benefits and provides a framework to present crucial information in a logical and integrated way, which is essential to understand a business’s long-term direction and short-term performance. However, companies need to go beyond legal requirements and consider whether they are meeting the needs of their wider stakeholder group. For many, the ongoing challenge is as much about enhancements to internal management information as it is to the quality of external reporting.

A key concern is that if companies do not provide strategically relevant information as a matter of course, they are more likely to find their reporting challenged by the market and other observers. At the end of the day, box-ticking compliance alone will not be enough for investors.

Contact details
Email: Richard Porter
Tel: +44 (0) 121 265 5398