Strategy & Operations » Governance » Annual reports don’t need to be so long

Annual reports don't need to be so long

Compliance fatigue is no excuse for lengthy, unwieldy reports. FDs must ensure that each word counts

The facts just keep mounting up. Annual reports and accounts, and all the traditional paraphernalia of financial reporting, are growing longer and longer. If it were becoming wordier and wordier that might be less of a problem. Instead, we have a continuing crisis of larger and larger reports, and less and less understanding. Frankly, it is the readers of this magazine who are stuck in the middle, trying to find an elegant piece of management-speak with which to convey a growing conviction that it is not their fault.

I understand it in a way. Nothing yet seems to have made reporting easier or more readable. Financial reporting is more complex and impenetrable now than ever. Narrative, which was our readability holy grail, is harder to do well. So what’s an FD to do?

The answer is to shift responsibility. Many of you think financial reporting is a bit beneath you. You see your role, many FDs tell me, in a strategic sense – a mover and shaker among the corporate top tier. Ideas and the rigorous implementation thereof is their mandate. It is the lowlier folk in the finance function who are tasked with grasping the financial reporting of the numbers and the grunt work of disclosure.

One of the problems is that it is hard work. Whoever it was who apologised for writing such a long letter because they simply didn’t have the time to write a shorter one was spot-on. In my experience, finance people have enough trouble expressing themselves clearly at the best of times. Having the skills and the painstaking determination to make things clear, short, unambiguous and informative is rare. Besides, no one gets a promotion or more money for hard work of this sort.

This is why FDs are shifting their responsibilities. All the minutiae and the scope for improving the nature of financial reporting are coming to resemble a no-win for them. So it seems to me they have decided that the best thing is to distance themselves from the process altogether – and that’s not good. Making the narrative side of financial reporting shorter, concise and clearly understandable does have a long-term effect, and FDs must be in charge of that. The old truism that investors are happier with companies they feel they know and understand is one to take seriously.

But it can seem dispiriting in the current climate. For 14 years Deloitte has produced an annual survey of narrative reporting. The latest shows that, for the first time, the average length of an annual report has topped the 100-page mark. Back in 1996, when its surveys started, they averaged 44 pages. A decade later it was 56 pages. Five years ago we hit 71 pages, and then it increased steadily until last year it reached the Mr Whippy – 99 pages. In 2010 the average is 101 pages of waffle.

Why? It is partly because organisations have become more and more complex; partly because analysts say they are happy with more information; and partly down to the snowball of regulation becoming ever larger as it rolls inexorably downhill. Small wonder that the coalition government issued a consultation paper on narrative reporting shortly after coming to power. Its consultation period is now over. So what could sensibly be done?

The real problem is disclosure. The growth in the number of pages that annual reports contain comes from companies blindly following the rules and pumping out more disclosure. And regulators, whenever criticised or worried about their continued existence in our quango-hating times, seek to justify their existence by producing more, not less, regulation.

FDs are the ones charged with wading through the blather and simplifying it for their companies. More effective disclosure, not more narrative, is the one thing that’s desperately needed, and if you are reading this, remember it is your job to see it is done, regardless of who you actually get to do it.

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