Corporate reporting

Financial reporting

The formal reporting of accounting information

Statutory requirement on

•       private limited companies - ltd

•       public limited companies – plc

In case of plcs a public document produced

Ltds’ documentation is also accessible to public

This is the obligation for limited liability status

Current model is known as corporate reporting

Dates back to the mid 1970s

Always in a state of evolution

Two decades ago calls for business reporting

•       acknowledge wider stakeholder interest

Currently attention is on integrated reporting

•       extend the information published

Annual report

The annual statement of business performance

Refers to performance in accounting period

Required to be filed within 4 months

Constructed around the 3 financial statements

In case of groups more statements required

Pursuit of greater transparency

‘Resented’ by business/accountants

Increasingly lengthy document

•       mandatory and voluntary contents

Recognised as a means of public relations

Available in hard copy and on-line

Quality/impact continues to improve

Variety has also increased – comparability issues

Accountants no longer have control

Notes to the accounts

Long been the largest part of annual report

Provides an explanation of financial numbers

Numbers predominate but some narrative

•       identify accounting policies adopted

Policies originate in accounting standards

•       International Financial Reporting Standards

•       Statements of Standard Accounting Practice

Conceptual Framework

Seeks to create a coherent underpinning to both

•       accounting theory

•       accounting practice

Principally understood as financial reporting

Also dates back to 1970s

•       FASB project 1976 – 80

•       IASB framework project 1989 – 2001

•       most recently 2010 statement

Notes to the accounts

Massive amount of information disclosed

For the most part only as required however

Concerns about what is not disclosed/required

Possible to reveal (bury) problematic disclosures

•       revaluations of fixed assets

•       significant debt write-offs

•       termination of failed initiatives

Analysts always very alert to such issues

Narrative reports

These have grown extensively in last 25 years

Characteristically use of numbers is limited

More significantly – more expansive

Seek to document a fuller story

•       greater accountability

•       more prospective/forward looking

A prominent attribute of integrated reporting

Chairman’s statement

Long established convention

Now understood as an executive summary

A general introduction to the business

Often low on specifics – found elsewhere

Generally a positive/optimistic overview

Not advisable to make exaggerated observations

Not audited but always monitored

Directors’ report

By contrast a closely delineated statement

A statement of performance and position

An assessment of future prospects

Additionally information on

•       the membership of the directorate (changes)

•       employee involvement

•       any major eventualities (prospective)

•       any recommended dividend

Again this is not subject to audit

Strategic Report

Most recent UK reporting requirement

Introduced in September 2013

A replacement for the 2007 Business Review

Prior to that the Operating and Financial Review

Also the Management Commentary provision

Similar requirements in other jurisdictions

•       Management Discussion and Analysis

Intended to be more of a self-evaluation

Corporate Governance

Now explored and documented at length

Greater emphasis on how directors operate

Perceived need to control excesses

Key milestone - Cadbury (Commission) Report

A decade later – Sarbanes-Oxley Act 2002

•       response to Enron scandal

Promotion of greater accountability

A growing number of issues to address

•       board responsibilities

•       directors’ remuneration

•       audit provisions

•       risk assessment

•       shareholder relations

Formal indication of CG provision compliance

Extended reporting

In principle can report/disclose anything

More companies now disclose information on

•       ‘people’ (employees)

•       sustainability

•       ethical behaviour

•       corporate social responsibility

Largely voluntary – only minimal requirements

Mandatory vs voluntary disclosures

The audit/’agency theory

Auditing is a major aspect of accountancy

Previously the principal source of income

Reflects the relationship between

•       owners/shareholder – ‘principals’

•       management  - ‘agents’

Auditors act on owners’ behalf  - independent

Appointed by management

Audit report

Annual reports must be audited

This does not apply to all content however

Reviewed by an independent third party

In practice by a small team of audit professionals

Follow a series of established principles

Including specific focused guidelines

Intended to be a powerful safeguard

Auditors provide an audit report

•       acknowledged as their (professional) opinion

•       a ‘true and fair view’ presented

•       accounts are properly prepared

•       in accordance with prevailing standards

Reports now commonly offer considerable detail

‘Qualified’ audit reports are rare (and damning)

Looking to the future

These are interesting times for accounting

•       much technical practice now deskilled

•       concerns about capacity to accommodate

•       ‘business reporting’ is more than a concept

•       continued pressures for greater accountability

Conversely accounting has exhibited resilience

•       revolution not evolution?