Reassessing Value PDF
Reassessing Value PDF
Reassessing Value PDF
Foreword 3
Summary 4
Introduction 6
Findings 8
Conclusion 12
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.
Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity,
innovation, integrity and accountability. We believe that accountants bring value to
economies at all stages of their development. We 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 their delivery
to meet the diverse needs of trainee professionals and their employers.
We support our 147,000 members and 424,000 students in 170 countries, helping
them to develop successful careers in accounting and business, based on the skills
required by employers. We work through a network of 83 offices and centres and more
than 8,000 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.
www.accaglobal.com/af
2
Foreword
To address these questions and issues, we have carried out this survey of 500 report
users in the UK, US and Canada to provide a base of data on which to build further
research. There were three categories of participants capital providers (large and small
investors); credit providers (banks, credit management) and other stakeholders (such as
suppliers, and company employees) to give a wide perspective, given that reports are
intended to be general purpose statements.
This report is just the start of what will be an ongoing and in-depth debate on the future
of corporate reporting facilitated by ACCA. Our aim, through discussion and research, is
to create clear and practical proposals that will reconfirm corporate reporting as a vital
source of information to investors, and to promote business confidence. As part of our
Accountancy Futures programme, we will be carrying out a series of initiatives with our
partners and key stakeholders around the world that will shed light on this key subject.
We would like to thank everyone who took part. The findings will inform ACCAs
initiatives on corporate reporting and we hope they are of interest to policy-makers,
regulators, CFOs, investors and everyone who has an interest in where the global debate
on corporate reporting is heading.
January 2012
If you have any questions about this report, please contact Ian Welch, head of policy
at ACCA:
Corporate reports are growing ever more complex. They are becoming longer, and richer in
content. However, with the need to address various standards, the resulting reports are not
always harmonious and often fail to communicate clearly. Even for technical experts they can be
hard to use. And the primary audience is increasingly unclear is the report aimed at investors,
both current and potential, or does it need to have a compliance role? Can the needs of both
regulators and investors be satisfied by the same document?
These issues have resulted in growing on other sources. And did they see the provides a useful context for future
pressure to overhaul corporate reporting. situation changing in the future? developments, for regulators, finance
In recent years we have seen the growth leaders who wish to engage investors,
of narrative reporting, and increasing Key findings and for the preparers of reports.
demand for a broader set of non-financial Perhaps reassuringly, 50% of our
71% of respondents think companies
disclosures. Attempts have been made respondents confirmed that the annual
should be reporting more on
to communicate risk management, report is still their primary or only
potential risks that could affect their
governance, environmental and social source of information. However, more
performance. This is unsurprising,
issues, and businesses longer-term than a quarter of our sample (26%)
given the spotlight that has been
strategic plans via the report. felt that it is difficult to assess a
focused on the treatment and
companys performance from the report.
management of risk by companies,
We are now witnessing the emergence And there was a wide range of criticisms
and particularly relevant in the
of integrated reporting, which attempts of the report.
post-crisis world. But such a strong
to bring together these themes in a
47% thought that reports are too long. result cannot be ignored, and there
coherent framework. It seeks to confirm
is clearly an opportunity for better
investors as the primary audience, and 35% felt reports are too backward-
communication of risk.
to communicate more effectively a wide facing.
variety of financial and non-financial 70% said that a companys key risks
40% said that reports are too general
disclosures. And in the background, and how they intended to manage or
purpose to meet their needs.
almost unremarked upon, we are seeing mitigate them was the most pressing
investors seeking much more information 35% responded that they are too issue for them following the economic
in real-time, via newsfeeds, press complex in their current form. Of these: crisis. The other areas that investors
releases, market sentiment and sources 68% believed that the reporting are significantly more interested in
such as brokers reports, quarterly standards that companies post-crisis included:
reports, and via direct engagement with are required to follow were to 63% were more focused on future
the company. blame, while plans and prospects (63%)
61% put it down to legal 59% on key performance
Project aims requirements. indicators, and
To identify what the real drivers for 58% on the financial statements
change should be, ACCA set out to speak There were also mixed opinions as to themselves (58%).
directly to investors, to get their views whether companies were reporting
The emergence of integrated
on whether they still valued the annual balanced and unbiased views of their
reporting was also welcomed. 59%
report, and whether they got what they position and performance. As many
said that the inclusion of social
needed from it. ACCA firmly believes respondents disagreed as agreed that
and environmental data through an
that investors are the foremost audience standards encouraged companies to
integrated report would add value.
of the report, and we believe that their provide a correctly balanced view of their
needs must be placed at the heart of performance, ie to include bad as well
Respondents expressed a clear interest
future developments. as good news. And almost half believed
in moves to real-time reporting. This
that too much promotional material had
is consistent with a recent report by
But given that annual reports are crept into the report. These are worrying
the Washington-based Center for Audit
currently supposed to be all-purpose findings, running against the concept
Quality, based on discussions of annual
documents, and will continue to provide of neutrality that must underpin any
report users, which concluded that by
information to a range of stakeholders, meaningful report.
the time the annual report is issued,
we also sought the views of other
the information contained is too dated
interested groups, such as capital The survey also managed to uncover the
to drive investment decisions; it is more
providers, suppliers, customers and staff. information that is wanted by investors
often used a baseline, supplemented
We asked 500 respondents, based in the but as yet undelivered, and that, if
with additional analysis based on more
US, UK and Canada, whether they still meaningfully addressed by corporate
current information such as quarterly
valued the information the report gave reports, could add value to investors
reports and press releases.
them, or whether they preferred to rely and other stakeholders. This information
4
TTTSummary
ACCAs respondents believed it would If this can be achieved, the report will
add value if such information could be become a more vital tool for investors,
externally assured, and this poses a and able to more comprehensively
number of questions that need to be communicate the underlying factors
further explored. It is unclear if external relating to the position and future
assurance could be feasibly applied prospects of a company.
to the full range of information that
management continuously provides Finally, the issue of real-time
investors throughout the year, such as reporting needs to be examined more
press releases, quarterly reports or other comprehensively. Developments
announcements to shareholders. It would in technology, the fragmentation
certainly provide a challenge to the of traditional media channels, the
accounting profession and the current emergence of social and mobile media
audit model. Is there even the capacity platforms and advances in analysis
and the technical means to meaningfully techniques have combined to create a
apply such an approach? rich pool of readily available but largely
un-assured sources of by-the-minute data
Next steps for investors. How can we add greater
The information gleaned by the survey assurance to such channels? And where
will provide ACCA with a strong platform does this leave reporting as a whole and
in its ongoing conversations with future role of accountants?
standard setters, regulators and the
businesses and finance professionals ACCA, through its Corporate Reporting
who shape and create corporate Research and Insights programme and
reports. We are also developing a strong ongoing engagement with businesses,
programme of engagement with investors standard setters and investors, will explore
around the world, including reports, these and other issues. And by doing
on the range of views that investors so begin to resolve where these exciting
have in regards to the whole system of developments will take us in future years,
international standards, of corporate and pinpoint both the challenges and
governance, and the future of reporting. opportunities that lie ahead.
Those involved in shaping the future of Fundamentally, the annual report is still
corporate reporting need to take notice seen as a document which adds value to
of these findings and other data that stakeholders. However, reporting must
support these fundamental insights: evolve in order to maintain and enhance
its value.
Investors should be positioned as
the most important audience for
the report, and need to be better
engaged in its future evolution.
The value of reporting to investors
can and should be strengthened.
This can be achieved by providing
a greater focus on forward-facing
plans, risk management, and properly
integrating these and other issues
in a more coherent way. Integrated
reporting shows real potential to
move this agenda forwards.
There is still a need to simplify the
report they should be pruned
where possible, and presented in
plainer language in places, as well
as being broadened to integrate the
disclosures that investors require.
It will be of little avail to the people that the laws are made by men
of their own choice if the laws be so voluminous that they cannot be
read, or so incoherent that they cannot be understood.
James Madison, President and primary author of the US Constitution
Companies devote extensive resources in The centeR for audit qualitys roundtables summary reported that
preparing their annual reports. A recent participants recommended that the full range of stakeholders
study by the Black Sun consultancy in develop a shared vision on the appropriate content of annual
the UK revealed that the 2010 reports reports for todays investor needs without being hindered by
from FTSE100 companies had typically current reporting requirements and the legal environment.
expanded by 11 pages on 2009, and now
averaged 175 pages, with six companies
totalling more than 300 pages. Yet there Too often, said the CAQ report, risk particularly the case when it came to
is growing scepticism that the reports factors discussions contained anything assessing the quality of risk management
deliver what audiences require. and everything. This finding mirrors and internal control, for which their main
the UK FRCs view that companies source of assurance was the quality of
The UK Financial Reporting Council frequently disclose too general risks such the board2.
in 2011 launched a cutting clutter as a downturn in the economy, rather
initiative, arguing that the value of than specific risks and how they are In its response to that consultation
reports was being reduced in the eyes of addressing them within the business. exercise, ACCA accepted that the
investors by the inclusion of unnecessary We believe it is particularly important annual report3 was one means by
material. Clutter in annual reports is a that directors explain clearly how they which effective communication with
problem, obscuring relevant information identify and manage risk and what keeps shareholders and other stakeholders
and making it harder for users to find the them awake at night said FRC CEO can be achieved, although it is not the
salient points about the performance of Stephen Haddrill in 2011. only one ... the annual report should not
the business and its prospects for long- therefore be seen as the key to achieving
term success it said. The first step in identifying what exactly high levels of shareholder engagement.
investors get out of annual reports is
This was echoed in the US, where, to recognise that they do not form one Ultimately, we need to assess what
following a series of high-level roundtable homogeneous group. Indeed, it is often role the corporate report should play,
events in the summer of 2011, the asserted that large institutional investors, and who it should be aimed at. If it
Center for Audit Quality summarised the along with other key figures such as fund is widely felt that annual reports rank
views of participants (which included managers, regulators, finance providers, relatively low among users sources,
investors, analysts, preparers, auditors, analysts and brokers, have little need then should serious efforts be made to
lawyers and others): for the corporate report at all central overhaul them? Or, given that preliminary
players like these would expect to have and interim results (without the
Annual reports are in a state of direct access to the board in order to get accompanying full report) can move the
disclosure overload resulting from the the information they require. markets and lead to a companys shares
expanding complexity of GAAP, as well as being a buy or sell recommendation,
compliance and liability concerns on In its 2011 consultation with UK does this show that the annual report
the part of preparers and counsel. There market participants on the issues of now adds little value?
was a clear call from investors and corporate reporting and auditing, the
preparers for elimination of redundant FRC confirmed this, reporting that: ACCA wanted to establish the facts
material in annual reports through better some institutional investors said that behind the assumptions and questions.
coordination of disclosures related to they placed more importance on the We also wanted to discover whether
legal information, management analyses, assurance they received from discussions users of annual reports read them
audited information, and importantly, a with boards and management than on more carefully now than before the
prioritisation of risk factors. the words in the annual report. This was financial crisis.
1 Effective Company Stewardship: enhancing corporate reporting and auditing (January 2011) FRC
2 Financial Reporting Council, Boards and Risk: a summary of discussions with companies, investors and advisors September 2011
3 Effective Company Stewardship, comments from ACCA on the discussion paper from the FRC, March 2011
www.accaglobal.com/general/activities/technical/archive_v2/subject/business/cdr1013
6
TIntroduction
There were few notable differences between the UK, US and Canadian respondents and only
minor statistical divergences between the three categories of participants.
The value of the report 2 The less encouraging news for the the ongoing importance of the AR as
1 Half of respondents said the annual current reporting set-up is that views identified in point 1 above, this is a
report (AR) was the main source of are mixed on the ease or difficulty of finding of some concern.
information they used to assess a assessing a companys performance
companys performance (41% said it using the AR. The biggest proportion of Interestingly, the survey also found that
was their main source and 9% said it respondents say that it is easy (41%), since the global financial crisis, 56% of
was the only source they use.) Given but there is still a sizeable minority who respondents analysed ARs more carefully
increasing doubts about the value of the say it is difficult (26%). And there are than they did previously.
AR to larger shareholders in particular, a series of specific criticisms of the AR.
companies can at least take comfort Respondents are more likely to agree that The finding that many believe ARs to be
from this finding when they are putting the AR is: too general purpose reflects a central
time and effort into producing their too long (47%) question who are reports aimed at and
reports. Media reports, investor briefings too backward looking (35%) can one reporting model serve the needs
and company prospectuses are also too complex (35%) the key of disparate audiences?
important sources of information. perceived driver of this complexity is
the reporting standards companies are ACCA has argued that accounts must
Perhaps surprisingly, only 20% of required to follow (68%) and the legal give unbiased information reflecting the
institutional investors said that they made requirements (61%) economic performance and position of
use of prelims in assessing companies too general purpose (40%). a business and in general, the needs
performances, which was less than of both investors and regulators are best
previous ACCA research had suggested. Discouragingly, more respondents served by such an approach. IFRS itself
But there may be an element of confusion disagree than agree that information has the concept of neutrality at its heart,
around this issue a PwC report issued in provided in the current AR format is clear which we believe is the right approach to
July 2011 indicated that prelims were a and concise. This is worrying given that ensuring unbiased reporting.
major source of interest for investors, but the issue of clarity was rated highly in
that many of them wrongly assumed that terms of importance factors in the survey. But it must be accepted that accounting
these had been audited. The report rightly Is this just the poor state of reporting as standards are nonetheless a cause of
concludes that this issue poses questions practised by companies or is the format some concern. More than two-thirds of
for the audit profession on the timeliness of the AR itself causing the problems? those respondents who believed ARs to
of audit opinion as assurance at that stage Either way it is a significant indictment be over-complex blamed the reporting
would seem to be of benefit to investors. of the state of current reporting. Given standards for this. And roughly the
what is the main source of information you use to assess company performance?
1% Preliminary announcement
3% Liaising with investor relations team directly 4% Liaising with board members directly
8
TFindings
Too long
Strongly agree 5
Strongly disagree 1
same number of respondents disagreed this tallies with previous ACCA research to attempts by regulators to address
as agreed that standards encouraged which has found a lack of proper whether at least the length of reports
companies to provide a correctly understanding of, narrative reporting and (if not their complexity) can be reduced
balanced view of their performance ie what it was trying to achieve. by minimising non-essential clutter in
include bad as well as good news. annual reports7.
One 2008 study5 revealed a lack of
These findings are perhaps not a interest from analysts in anything other Improving the report
surprise given the frequent criticisms than hard numbers, while a 2010 report 4 In terms of what can be done to
of standards. ACCAs Complexity in commissioned by ACCA and Deloitte6 improve things, a significant proportion
Financial Reporting survey4 provided a covering nine markets suggested that of respondents think companies should
clear indication from respondents that while companies were trying their best be reporting more on potential risks
using IFRS is overly and unnecessarily to engage in narrative reporting, there that could affect their performance
complex. So the IASB still has work to was confusion over its objectives and (71%). Many regulators will probably be
do in ensuring its standards meet users audiences, and suggestions that reports sanguine about this finding, given their
needs for clarity, especially given the suffered from information overload. own criticisms of risk reporting and the
ongoing convergence programme with need to improve.
the rules-based US GAAP regime. The latest ACCA survey found that a
key influence in terms of whether users This is a substantial majority of
3 The fact that almost half (48%) found an annual report easy to use was respondents and this issue clearly needs
think ARs are marred by too much whether it provided the right balance of to be addressed by companies.
promotional material is another concern. financial and non-financial information,
Given that such material would inevitably to allow them to make informed Risk also topped the list of subjects in
be found in the front end of the report, decisions. All this gives justification which respondents were more interested
CEOs/Chairmans statements
Audit report
Financial statements
since the crisis no less than 70% said social and environmental information, When asked if including such information
that key risks and how companies were which tallies with the view that for many in an integrated report would be useful
intending to manage or mitigate them companies and their stakeholders, this to them, 59% said yes. While there
was now was the key issue for them. was always a nice to have in the good was no clear answer in terms of what
times, but not of first rank importance developments would most improve the
5 The other key issues that had changed during a downturn. state of corporate reporting, it does seem
in their perceived importance pre- and that integrated reporting is an interesting
post-financial crisis were future plans But it is noteworthy that integrated area to many participants, which
and prospects (63% of respondents) reporting, even in its infancy, may confirms anecdotal evidence acquired by
key performance indicators (59%) and prove to be instrumental in reversing ACCA in recent months. Certainly ACCA
the financial statements themselves the decline in interest in social and believes that sustainability needs to be at
(58%). It was noteworthy that an area environmental data. the heart of reporting.
which had actually fallen in interest was
10
TFindings
Emerging issues of such reports would benefit from the but others felt that everyone should get
6 Respondents expressed interest inclusion of an external audit opinion. the same information albeit perhaps
in moves to real-time reporting, The CAQ roundtable series in 2011 with two versions (one simpler version
although a caveat to this was that also found support for the idea that available to users generally, and a more
such information should be externally external assurance would be useful detailed version for analysts).
assured. This supports initial findings for the information that management
from ACCAs global series of audit continuously provides investors Corporate governance issues had risen in
roundtables in 2010, which found that throughout the year such as press importance since the crisis according to
auditors would have a crucial role to releases, quarterly reports or other the respondents, but it was noteworthy
play in verifying a more regular flow of announcements to shareholders. that there was only a relatively small rise
information from companies. in interest in directors pay. Given the
The advent of XBRL has led to an furore in the wider political and public
The demand for independent assurance increased interest in the issue of whether arenas about executive remuneration
of management reports was confirmed reports can or should be customised to since the onset of the crisis, this seems
by other recent studies firstly, the different audiences, but the findings on to suggest that shareholders and finance
ACCA and Deloitte report (see page 9 this were mixed. Some respondents felt providers are keeping focused on the real
above), which found that the usefulness it would be useful to be able to do this, issues as they see them.
2 14%
3 21%
4 41%
For all the concerns expressed by many stakeholders over corporate reporting, our survey
strongly suggested that the annual report had not diminished in significance for investors and
other stakeholders. Indeed, its importance seems to have increased since the onset of the global
financial crisis as respondents are reviewing reports more carefully. This at least provides an
encouraging backdrop against which regulators, standard-setters and companies themselves can
go about the task of simplifying, clarifying and adding more value to corporate disclosures.
8 Effective Company Stewardship: next steps. September 2011. Financial reporting Council
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re-assessing the value of corporate reporting 13
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re-assessing the value of corporate reporting 15
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The information contained in this publication is provided for general purposes only. While every effort has been made to ensure that the information is accurate and up to
date at the time of going to press, ACCA accepts no responsibility for any loss which may arise from information contained in this publication. No part of this publication may
be reproduced, in any format, without prior written permission of ACCA. ACCA December 2011.
ACCA
United Kingdom
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www.accaglobal.com
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