ICAEW publishes report providing recommendations to improve the quality of corporate reporting

  • ICAEW (Institute of Chartered Accountants in England and Wales) (lt green) Image

14 Mar, 2016

The Institute of Chartered Accountants in England and Wales (ICAEW) has published an 'Audit Insights' publication that “examines seven important areas of annual reporting and makes recommendations that will improve the quality of corporate information provided”. The publication builds upon its publication Corporate Reporting: Seven questions and a debate for 2016 published in December 2015 which offered seven questions for users, preparers and auditors to ask in order to provide better information during the reporting season.

The ICAEW observe that “company reports are too long” and indicates that “there does not seem to be enough momentum to do anything about it”.  It highlights the importance of the annual report to company stakeholders in understanding a company’s financial performance, its business model, strategy for future growth and key risks.  Given the importance of the annual reports the ICAEW indicates that “it is essential that they are relevant and present a coherent and balanced picture of the business and its prospects”.  However, with the increase in rules and regulations for disclosure, the ICAEW indicates that the size of annual reports have “ballooned” and observes that annual reports are now in danger of not being “fit for purpose”. 

To help achieve this aim the report provides recommendations in seven key areas of annual reporting with the objective of improving the quality of information provided to stakeholders.  The questions are:

  1. Is everything in the report material?
  2. Are performance measures credible?
  3. Is tax reporting understandable?
  4. Does the audit committee report on key issues?
  5. Is the audit report providing insights?
  6. Does the remuneration report explain high pay?
  7. Is the company putting enough resources into reporting?

The ICAEW recommendations are intended to “encourage improved reporting so that companies give an insightful and understandable picture of their corporate performance to a wider stakeholder audience” and provide only meaningful and relevant information that tells a coherent story.  The focus of the report is on the “length and complexity” of information provided in the “front-half” of annual reports.

The ICAEW indicates that in order to ensure that information in the front half remains useful for investors and other stakeholders:

  • Regulators and standard-setters have an important role to play.  The ICAEW “endorses” the work of the FRC with its Clear & Concise initiative and the Financial Reporting Lab’s work in encouraging innovation.  However, the ICAEW comments that the FRC should look at other initiatives – such as supporting the reporting of information outside of the annual report; for example on a company’s website.  The ICAEW highlights that “this will empower risk-averse preparers to be more challenging and confident in only including information that is meaningful to a company’s specific circumstances”. 
  • Auditors should help companies navigate the complexities of current reporting with best-practice advice and by producing an informative audit report.
  • Investors need to play a more active role to influence what is disclosed.
  • Preparers should only provide meaningful and relevant information that will produce a coherent business story.

The ICAEW “hopes that this report will help to reignite the debate over how corporate reporting needs to change to improve communication and accountability”.

The press release and full report is available on the ICAEW website.  Our previous UK Accounting Plus news item on the December report is available here.

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