UK companies might have to split up their annual reports and tailor information to non-investor readers, under proposals outlined in October by the Financial Reporting Council, the UK’s accounting watchdog. FRC’s disclosure paper prompts companies to “unbundle” annual reports, which are too long and difficult for non-investors to understand, and spread the information across a “network of interconnected reports” serving different purposes and readerships. The core of the “network” will be a central and stakeholder-neutral Business Report, an evolution of the strategic report where companies will disclose how they plan to create value over time, comprising non-financial data and some key metrics. In addition, corporates will have to produce separate financial statements and a novel “Public Interest Report”, addressing their non-financial impact on areas such as society and the environment.
FRC’s proposals are intended to strengthen communications between a company and its stakeholders, the very purpose of corporate reporting. Integrated reports can be long and difficult to navigate, as companies often gear information to shareholders and investors, and mix financial with non-financial data. Moving to a network structure where each report is designed for a specific reader group, may well bridge the communications gap between companies and their non-investor stakeholders. On the other hand, could splitting up annual reports further muddy the waters? Integrated reports, long as they are, hold all data in one place, whereas their fragmentation could make it an onerous task to find information. The prospect of multiple reports leaves the door open for different formats, time frames and even definitions, making it difficult to holistically evaluate companies and compare their performance with their peers’. In order to avoid this, the FRC has outlined structural guidelines to encourage consistency across reports and companies. However, the guidelines are vague and ultimately at the company’s discretion to adopt, so uniform reporting is unlikely. This risk of overcomplicating disclosures has gained additional traction, as there have been international and EU calls to standardise reporting.
To hold companies accountable, we need more consistency, not less, and while an information gap may exist for non-investor stakeholders, companies could bypass it through other means, such as streamlining the existing annual reports, or adding user-friendly information on their website. “Unbundling” integrated reports, however, risks doing more harm than good.
Author: Irene Gracia