Narrative reporting

A growing presence

Extensive narrative content in annual reports

•       Chairman’s statement

•       Directors’ report

•       Auditor’s report

•       Statement of corporate governance

•       Strategic report (business review)

Plus more or less whatever else you wish

Most narrative content is not subject to audit

Although informally auditors might review

Much narrative =  voluntary disclosures

 As opposed to a mandatory requirement

•       if voluntary – can always omit

•       more significantly – disclose what you wish

Appearing to say a lot but actually very little

The Corporate Report

A key milestone in development of UK reporting

Published by ASSC in 1975

Provides underpinnings of corporate reporting

And in retrospect the case for narratives

Several alternative statements identified

•       value added statement

•       money exchanges with government

•       transactions in foreign currency

•       employment report

Employment reporting

Provision of information on employment issues

Most specifically about employees

•       human resource accounting

•       beyond ‘putting people on the balance sheet’

These were more enlightened times

•       corporatism – the new capitalism?

Alternatively employee reports

A wide range of possible content

•       age and gender profile of employees

•       workforce size and distribution by type of jobs

•       geographical distribution

•       employee turnover

•       training and development expenditure

•       skills/competence profiles

•       health and safety performance

•       sickness absence/health and wellbeing

Operating and financial review

A major UK innovation in narrative reporting

Introduced in 1993 as a voluntary disclosure

Prospective information not historical

Opportunities for using non financial measures

Two elements were identified

•       operating review – discussion of performance

•       financial review –  financial management

Valuable additional information for investors

Proposal to make mandatory from 2006

With an extended content

Was abandoned in November 2005

A Business Review requirement introduced

Coalition Govt proposed OFR reintroduction

Evolved into Strategic Report requirement

Once again a very open ended document

Now quietly being abandoned by government?

Management Discussion and Analysis

The US counterpart to the OFR

Introduced by FASB in 1999

  MD&A should provide a clear and concise

  description of the reporting entity and its

  mission, activities, program and financial

  performance, systems, controls, legal

  compliance, financial position, and financial

  condition [in a balanced fashion].

Management commentary

The 2010 IASB requirement on such disclosure

Identified in an IFRS Practice Statement

Does not have standing of an IFRS

So it is a mandatory requirement not voluntary

But again detailed compliance not demanded

•       acknowledge the practice statement

•       required to follow ‘principles’ not ‘rules’

Corporate social reporting

The practical complement to social accounting

•       accounting to society

Has evolved into two complementary emphases

•       environmental/sustainability accounting

•       business/corporate ethics

A predictable ambivalence from business

And a site for developing narrative reporting 

United Nations Global Compact

Identifies 10 universally accepted principles

•       on human rights (2)

•       on labour (4)

•       on the environment (3)

•       on anti-corruption (1)

ISO26000 complements this statement

Provides guidance on reporting principles

Global Reporting Initiative

The most mature initiative in CSR space

Dates back to late 1990s, with UN links

The provision of guidance for reporting

Focus is on environmental/sustainability issues

Aims to make sustainability reporting routine

Has adopted a corporate approach to challenge

4000+ organisations have signed up

Has embraced the Triple Bottom Line model

•       economic - profit

•       social - people

•       environmental – planet

None is to be accorded primacy

More recently a 4^th bottom line – governance

Beginning to look a little familiar?

Social audit

The complementary accounting intervention

Provide assurance of CSR activity

First social audits predate current initiatives

•       independent scrutiny of annual reports

•       often politically motivated

Accounting firms have moved into the space

•       provide legitimacy and credibility

Danish Guideline Project

An alternative approach to IC reporting

Heavily reliant on narratives

Funded by Danish government 1998-2002

A two phase intervention

•       initial work with 17 companies

•       broader project with 100 companies

The principal output was a reporting framework

•       intellectual capital statement

Meritum project pursued in parallel

Intellectual capital statement

A four element generic framework

•       knowledge narrative

•       management challenges

•       initiatives

•       report – similar to the second iteration BS

Various ideas on the status of the ICS

At the extreme – replace annual reports

The ICS: 2003 – 2013

A review of the fate of the ICS over a decade

•       modest success – only a minority persevered

•       accountants rarely took ownership

•       success was normally robustly championed

•       ‘people’ was the most enduring focus

•       certainly not a waste of resources

The downfall: not made a mandatory disclosure

Self-accounting narratives

“Imprisoning people in other people’s accounts”

Empower human capital to produce narratives

•       work experiences

•       intellectual development

•       organisational culture

•       health and wellbeing

Complemented by customer self-accounts