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UK study reveals investment professionals see further scope for improvement in annual reports

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14 Jul 2015

The CFA Society of the UK (CFA UK), part of the worldwide network of member societies of CFA Institute, has released the results of a recent survey of more than 290 investment professionals seeking member views on the importance of the annual report and other forms of company reporting, as well as perspectives on adjustments to IFRS numbers and issues with IFRS accounts.

On general results the survey revealed:

  • Most respondents (60%) believe that financial reports contain too much irrelevant information.
  • However, many (55%) state that at the same time financial reports omit important information.
  • A third of the respondents (36%) said that the statutory accounts were their main source of financial information for analysing companies.
  • Half (47%) of the respondents state that the area of the annual report that shows greatest need for improvement is the disclosure of principal risks and uncertainties.
  • Over all, most respondents (71%) agreed that the quality of financial reporting has improved over the last 10 years.

The questions on non-GAAP reporting showed that this remains a contentious issue:

  • Over half (61%) of respondents said they use IFRS adjusted numbers in their analysis.
  • However, only a third (33%) say that they prefer non-IFRS measures over IFRS, with over half (56%) trusting the IFRS numbers more.
  • When asked to consider which items should be excluded from IFRS figures to arrive at a measure of underlying earnings, the majority of respondents (65%) were against exclusion of any of the items suggested.
  • Two-thirds of respondents favour looking at both IFRS and adjusted numbers as the combination of the two offers greater insights into the company and its management.

The biggest concerns that respondents raised with regard to financial reporting related to the abuse of non-GAAP/IFRS adjusted earnings measures; excessive and redundant information in financial reporting; fair value movements obscuring underlying earnings measures; excessive focus on the income statement and not good enough disclosure of cash flows; and poor disclosure of off-balance sheet exposures.

CFA UK has also published a position paper on non-IFRS earnings and alternative performance measures, which includes findings from the survey.

Please click to access the following documents on the CFA UK website:

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