News Release – A corporate report in less than 30 pages? ICAS publishes ‘Making Corporate Reports Readable’

It is a view that few, if any, would argue with. The annual reports of listed companies have become too complex and focused on compliance, rather than providing useful information on the business to investors.

A potential solution is ‘Making Corporate Reports Readable’, from The Institute of Chartered Accountants of Scotland (ICAS). This contains a pro forma short form report which uses the example of a fictional universal bank as the underlying business and produces – in less than 30 pages – the key information of interest to investors.

Aimed at meeting the needs of the investment community

ICAS proposes requiring top management to communicate what they see as the most important aspects of past performance and future strategy in 20 to 30 pages, including describing the main business models and risks. The example of Model Bank plc in ‘Making Corporate Reports Readable’ is a demonstration of how this might look in practice.

The ICAS contribution comes as the debate surrounding complexity in corporate reporting has gained momentum. The UK Financial Reporting Council (FRC), and the US SEC’s Advisory Committee on Improvements to Financial Reporting have been considering the complexity of financial statements. The Financial Reporting Council published their discussion paper ‘Louder Than Words’ in June 2009, suggesting a principles-based approach to corporate reporting. In its response to this consultation, ICAS welcomed such an approach but noted that there was a need to take the concept forward. ‘Making Corporate Reports Readable’ provides a template for reducing complexity.

Commenting on the publication, Hugh Shields, Chairman of the ICAS Corporate Reporting Task Force and Head of External Reporting for Deutsche Bank, said, “It’s clear that something radical must be done. The annual report has become a Frankenstein’s monster of information intended for a number of different users. However, at its heart, financial reporting is about effective communication with investors. That’s why ‘Making Corporate Reports Readable’ is aimed unashamedly at meeting the needs of the investment community.”

“The Short Form Report is not intended to replace the full annual report and financial statements but would use alternative reporting technologies such as XBRL to allow the user to access this, more detailed information, via web links. In effect, the full annual report and financial statements would sit behind the Short Form Report. The value of the Short Form Report is in providing a definitive, uncluttered statement of how the business makes its money and top management’s view on the business model. ”

Shields continued, “The document is just a first step. I believe it could ultimately replace the Annual Review and summary financial statements and the preliminary announcement. In the coming months we will be consulting widely with investors, issuers and others to support and refine the proposal.”

Issued: 26 February 2010

Related item:

• Making Corporate Reports Readable

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