More flexibility needed finds new global report from ACCA and Deloitte
The growing complexity of rules and standards is at risk of seriously limiting the usefulness of narrative reporting, warns a major new global report from ACCA (the Association of Chartered Certified Accountants) and Deloitte.
Hitting the notes, but what's the tune? collates the opinions of some 230 chief financial officers in listed companies across nine countries on the current challenges and future shape of narrative reporting in annual reports.
The report finds that the divergent needs of shareholders and regulators are leading to overly-complicated and compliance orientated reports.
Abbas Ali Mirza, Audit Partner at Deloitte in the Middle East, explains: "Companies are trying to serve two masters at the same time. They want to inform shareholders of what is happening in the business. They need to satisfy regulators by meeting all the disclosure rules. To achieve succinctly and simultaneously both outcomes in the same report is a major challenge."
Helen Brand, ACCA's chief executive says: "Even before the global financial crisis, questions were being raised about the validity of current corporate reporting. As our report finds, increasingly voluminous and complex regulatory requirements are seeing the story of business performance drowned out by a mountain of detail."
Results from UAE show that:
- An equal number of survey respondents (88%) consider shareholders and regulators to be highly important audiences for narrative reports. While 94% of the survey participants see legal and regulatory requirements as the main driver for narrative reporting, 81% also see shareholders' requirements as a main driver.
- The most common narrative disclosures include the directors' remuneration report (88%), an explanation of the financial results and financial position (88%), and the most important risks and their management (88%).
- Since the financial crisis, respondents have seen an increase in shareholders' interest in explanations of financial results and position (94%), in disclosures of important risks and their management (88%), and in future plans and prospects (88%).
- A large majority (81%) of respondents consider the absence of comparable industry benchmarks to be the main challenge when producing useful narrative reports. Going forward, respondent said the usefulness of narrative reports would be improved by the inclusion of external auditor opinion (82%) and third party verification/assurance statement (50%).
- In future, 44% of respondents would like more discretion and less regulation in the preparation of narrative reports, 25% of respondents would like more regulation and less discretion and 31% would like neither more nor less regulation and discretion.
Globally, the interviewees perceived the five most important disclosures for shareholders to be: explanation of financial results and financial position (identified as of high importance by 87%); identifying the most important risks and their management (67%); an outline of future plans and prospects (64%); a description of the business model (60%); and a description of KPIs (58%).
The demands from regulators differ from those from shareholders. All nine countries covered in the report demand remuneration reports (seen as of high importance to shareholders by only 49% of preparers) and a statement of compliance with corporate governance codes (46%).
Abbas Al Mirza concludes: "We need to debate the future direction of narrative reporting. Do we give preparers' more responsibility, or, do we let the relevant authorities issue more rules for preparers to obey? Less data may provide for better information."
Helen Brand concludes: "Today's reporting is meeting the data requirements but is it information? Our results suggest not. Preparers seek more discretion and less regulation."
- Ends -
Notes to Editors
1. About the report
A pdf of the report is here: http://www.accaglobal.com/pubs/af/narrative/new/hitting_the_notes.pdf - The report is based on telephone interviews with 231 CFOs and group finance directors from companies based in Australia, China, Kenya, Malaysia, Singapore, Switzerland, the UAE, the UK, and the US in April and June. Further in-depth interviews were carried out with 7 other CFOs from Kellogg Company (US), Centum Investments Company Ltd (Kenya), Dubai Insurance Company (UAE), Exco Resources (Australia), Straco Corporation (Singapore), Spirent Communications plc (UK), and Time dotcom (Malaysia) and three representatives from investor organisations (the Council of Institutional Investors (US), the Association of British Insurers (UK) and the National Association of Pension Funds (NAPF).
2. About ACCA
ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. We support our 140,000 members and 404,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,000 Approved Employers worldwide, who provide high standards of employee learning and development.
3. About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than140 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 170,000 professionals are committed to becoming the standard of excellence
The information contained in this press release is correct at the time of going to press. For more information, please visit www.deloitte.co.uk.
Member of Deloitte Touche Tohmatsu Limited.
For further information, please contact:
Ayad Nahas
Regional Public Relations Manager
Deloitte Middle East
+961 1 748 444
© Press Release 2010
