Narrative reporting should focus on ‘what the markets want to hear, not on what companies want to talk about’, says ACCA
Date
Sections
- Investor needs must be met and future developments need to consider the global perspective
Restructuring the UK statutory directors’ report is part of the necessary process of making corporate reporting more responsive to the information needs of investors, says ACCA (the Association of Chartered Certified Accountants) in its official response to the Department of Business, Innovation and Skills (BIS) consultation on a new narrative reporting framework.
In its response, ACCA says that current structures are not helping narrative reporting to reach its full potential. Instead, ACCA wants to see narrative reports that focus on what the markets want to hear, not on what companies want to talk about.
ACCA believes a long standing flaw in the UK’s statutory directors’ report is that it has tended to be used as a convenient place for information mandated to be disclosed by various items of law and regulation. This has meant that as the number of disclosures required to be made in the directors’ report has increased, it has made the report progressively less capable of communicating a coherent message.
John Davies, head of technical at ACCA advises: ‘Given this situation, it makes much sense to separate compliance-related disclosures from the strategic narrative, which will in future be set out in a more focused Strategic Report. The second proposed statement, the Annual Directors’ Statement, should, however, have its own coherent rationale and should not simply become a repository of ad-hoc disclosures.
‘ACCA considers that this project offers an important opportunity to ensure that companies prepare and publish information which helps to facilitate constructive company-investor engagement and to encourage both sides to address the wider issue of long-term focus.’
ACCA believes that high quality narrative reporting can help enhance communication between companies and their investors, and other stakeholders.
ACCA has carried out a number of studies in recent years which have looked at the issue of narrative reporting from the perspectives of both preparers and users. The results of these exercises have underlined the need for policy makers to:
i) restrict mandatory disclosures to those which are likely to add value for users
and
ii) allow companies the freedom to tell their own ‘story’ in a way which communicates their boards’ genuine desire to engage with their stakeholders.
However, ACCA is concerned that any changes which are introduced need to take into account the various current parallel global developments in the areas of stewardship and reporting and ensure that inconsistencies do not arise.
John Davies adds: ‘The International Accounting Standards Board (IASB) has recently issued a Management Commentary standard which provides substantial advice for companies on how to provide further explanation of the results in the financial statements: listed companies will be obliged to adopt that standard. Also, the IIRC is also working on an ambitious project to develop a new framework for ‘integrated reporting’, which may in due course either become the acknowledged benchmark for narrative reporting or even become the sole reporting statement.’
John Davies concludes: ‘When companies explain what they are doing in a way which satisfies the specific information needs that investors have, it serves the public interest goal of transparency and at the same time enhances the efficiency of decision-making in the marketplace. Where companies are able to explain their actions and future plans in a way which has the effect of increasing trust and confidence in what they are doing, that stands to benefit companies themselves by enhancing their attractiveness to investors and potential investors.’
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For further information, please contact:
Nick Cosgrove, ACCA Newsroom
+44 (0)20 7059 5989
+44 (0)7963 496144
Helen Thompson, ACCA Newsroom
+44 (0)20 7059 5759
+44 (0)7725 498654
Notes to Editors
1. 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.
2. We support our 147,000 members and 424,000 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 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.
3. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.