August 21, 2014 Towards clear and concise reporting
It is a scant two months since we commented on the start of the FRC’s move to promote the idea of clear and concise reporting. The FRC’s initiative is designed to help investors to more clearly assess a company’s performance, position and prospects.
In our last article we looked at the advice issued in respect of the strategic report. Now the FRC has issued an insight report, examining the progress made by companies towards the ideal of clear and concise reporting. Based on observations of the latest round of company reports the insight document identifies four key areas in which organisations have taken action to promote clarity before going on to highlight actions which organisations can take to make further progress towards the ideal.
Looking first at the four key moves to improve clarity, these demonstrate actions taken both in giving consideration to the way in which users access and use content as well as the way in which that content is presented. The action areas identified are:
- Communication channels – identifying which are the best methods of communication and how those communications are best matched to the needs of users
- Content focus – focusing on content which is important to investors
- Materiality – focusing on significant accounting policies and removing immaterial disclosures
- Layout – improving clarity and using cross-referencing to reduce duplication
Turning to the future action areas, these follow the mainstream planning practices of plan, do, manage, evaluate. These actions are intended to form part of a continuous cycle of improvement over time with every step building on the previous one. Key to the first planning action is making sure that there is leadership buy-in. The CEO and leadership team may like the use of certain phrases and explanations but they will have to come to accept that the layout of the report may need to change to improve clarity.
Flowing on from this is the need for managing the change process. This encompasses the identification of change managers and setting the scope of changes to be made. Here the FRC advises that it is important to bring auditors in early on in the process and to ensure that despite the slimming down, statutory declarations are still covered.
Finally, once all of the changes have been made it is important to review, to obtain feedback from investors and other key users and to reflect before embarking on another round of changes.
The actions suggested by the FRC may sound a little daunting to those tasked with the preparation of annual reports. Continuous change will take up more time than ‘more of the same’ and when pressure is on to release results that is time which is at a premium. But when the end goal is a clear and concise report which will attract future investors and improved corporate governance, the rewards justify the work involved.
