The Financial Reporting Lab (the Lab) was set up by the Financial Reporting Council to improve the effectiveness of corporate reporting in the UK. To date the Lab has produced eight reports covering a range of governance and financial reporting projects which have involved the Lab working with companies and investors directly to find ways to improve financial reporting. This report is the Lab's first insight report. The Lab's aim is for insight reports to provide details of actual trends and developing practice it has identified in corporate reporting.
The report notes observations made during a review of the annual reports of FTSE 350 companies for year ends between 30 September and 31 December 2013 which were released between October 2013 and March 2014. The aim of the review was to identify those companies which had made a significant effort to make their annual reports clearer and more concise with reduction in page count identified as one positive indicator.
The 2013 reporting cycle saw the introduction of the standalone strategic report for some companies as well as new requirements for remuneration reporting. It also saw changes in reporting required by the 2012 UK Corporate Governance Code, including the requirement that the annual report and accounts as a whole be fair, balanced and understandable.
The first part of the report looks at examples of what companies have done to aid clarity and conciseness. Companies have considered:
- the communication channels they use and matching information to user's needs. For example taking out detailed information of interest mainly to analysts and putting it somewhere else (on the website for example) or in a supplementary section or sending members the Strategic Report with the required supplementary materials instead of the full annual report
- focusing content on what is most important to shareholders – for example, reporting more on actions taken by committees rather than just describing what the committees do, removing standing information like the terms of reference for committees and putting it on the company's website, reducing information about the AGM and registrars and putting this on the investor relations section of the website and tailoring directors' biographies to include only key information
- the materiality of the information included, for example checking if information is no longer relevant or required
- the most appropriate layout for the annual report, how tables are laid out, using effective cross referencing and signposting, making sure reports are focused and that there is no duplication.
The second part of the report then sets out helpful suggestions for companies which wish to improve the effectiveness of their reporting by setting out a series of steps they might wish to take.
Finally, the report looks at two case studies, Prudential plc and BP p.l.c., and looks at how their annual reports have changed for the better over the last two years and how and why these changes came about.
The report, Towards Clear & Concise Reporting, can be accessedhere.