The Bruce Column — How Annual Reports and best practice are evolving

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31 Oct, 2013

Our regular resident columnist, Robert Bruce, takes a look at the latest survey of annual reports and change in company reporting.

You win some. You lose some. But the latest survey of annual reports* shows that it is the upside of company reporting which is showing the most gains in terms of quality and quantity of information disclosed and story told. The downside is the traditional bellwether of reporting, the average number of pages in the report. This rose from 103 pages in 2012 to 107 this year. But even here there was a good reason behind the increase. Another feature of the survey is the sheer number of companies already covering the issues that the new strategic report will require for periods ending on or after 30 September 2013. This meant that the increase in pagination could be simply the result of companies going for early adoption of new directors’ remuneration disclosures and banks, unlike their European counterparts, complying with the recommendations of the Enhanced Disclosure Task Force. And, in any case, it is the balance within reports that now counts. Over half, (51%), is now devoted to narrative reporting. The story is increasingly being told.

Again it is the voluntary information which is burgeoning. There is no requirement for companies to provide a detailed narrative summary section at the start of their annual reports. But increasingly they do, up from 78% in 2012 to 89% in 2013. And, as there are no mandatory rules as to what such sections can contain, companies have the luxury of a blank canvas to explain and express themselves.

The scale of the early adoption of parts of the new strategic report also augurs well. It means that an idea of what is best practice will be out there in public early on for other companies to emulate. The transition will, hopefully, be all the smoother for it. And this will also help companies move in the direction of the idea of an integrated report, separate to the annual report, which will deal with environmental, social and governance information.

The survey also shows that the reporting of risks and uncertainties is also improving. The overall figure of companies which clearly identify their principal risks and uncertainties remains the same as last year, at 83%. But the percentage of companies offering only boilerplate, rather than an analysis of company-specific risks, fell from 11% last year to 5% this.

Where companies are still failing is in the linking up of different parts of their story. Only 28% of companies were deemed to be clearly linking all of the different components of their annual report together. This is better than last year when the figure was 14% but is still poor. For example 90% of companies disclosing their objectives provided a link to these and the strategy employed to achieve them but only 43% provided links to the measures used to assess the success of that strategy.

But overall the message is an optimistic and hopeful one. While there is much change coming up in the year ahead of us companies are increasingly showing signs of moving in the right direction. And this survey provides much guidance and description of best practice to ease future changes.

*A New Beginning: Annual Report Insights 2013

The 2013 Deloitte survey of annual reports 'A New Beginning: Annual Report Insights 2013' can be accessed here.

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