A little prediction: you won’t find many City analysts or quoted company FDs enjoying themselves on the ski slopes come 1 March 1999. That date is “Prelim” day – the newly introduced 60-day deadline – by which any self-respecting, politically correct company with a 31 December year-end will have issued its preliminary results.
The fact that City investment analysts are already wondering how they are going to cope with a deluge of company results and presentations around 1 March is one – perhaps slightly unforeseen consequence – of the Accounting Standards Board’s (ASB) pronouncement on preliminary announcements.
The best practice guideline may not be compulsory, but with the official blessing of the Stock Exchange and the Hundred Group of Finance Directors it may as well be. And that means another checklist for FDs and their auditors to bash through. The recommendation on timing is the most radical idea in the document. There was some discussion over whether the ASB should opt for 70 or even 75 days. But in the end the idea that best practice meant just that forced the two-month timetable. The other guidelines may mean more companies putting out more standardised information but it is all data which should be to hand as it is all destined to be repeated in the annual report.
You could argue that the timing recommendation is no big deal either.
In the US, quoted companies are used to the sort of timetable which only the UK’s quickest have managed. However, many US companies effectively do the accounts for the 11-month period, adding on the December figures as soon as they are available and reviewing the overall results for reasonableness.
Whether such a methodology will find favour with the UK’s quoted sector remains to be seen.
Shadowing the ASB’s pronouncements, the auditing standard setter, the Auditing Practices Board (APB), has also joined in the act. It has told auditors that they can’t sign off the FD’s prelims until the audit is at a sufficiently advanced stage. Which means auditors have to be happy there are no skeletons to discover at the last minute. That’s fair enough.
But you can envisage auditors and FDs having polite exchanges as the FD explains the importance of timing, and the auditor expresses his reservations about the veracity of a material feature or two. For their part, the present day commercially minded auditors are insisting manfully that they will fit in with any timetable that the FD presents to them. But it might be worth a quiet chat with the audit partner sooner rather than later.
At the same time as the ASB was putting its finishing touches to its thoughts on prelims, BAA was proving the point. Earlier this year, the company that runs Britain’s main airports issued its full annual report at the same time as its preliminary results, proclaiming itself the first FTSE-100 company to do so. Without taking anything away from BAA’s no doubt excellent finance department, its achievement has probably more to do with technology-inspired production and printing processes rather than technology-backed financial reporting packages.
However, the overlap of these two events by BAA serves to illustrate the confusion that there is over financial reporting cycles. The ASB has always professed itself to be fond of commercial or market realities.
It argues in this instance that the commercial reality is that the interim and prelims move the share price in the markets far more than the annual report does, especially if either interims or prelims contain new, previously unreported information about the latest period. The ASB is right and it makes a lot of sense to ensure the investors’ understanding of the financials through the prelims is complete, accurate and balanced.
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However, some commentators are worried that the prelims may concentrate too much on the last six months of the financial year. The Statement encourages companies to comment specifically on that period, separately presenting the second-half figures. But that again only reflects the wishes of the market. In terms of format, the statement sensibly ties in the prelims with the interims (the ASB published guidance on interims in September last year). So from now on the standardised information which all companies should produce will include: a narrative commentary, along similar lines to the operating and financial review, although not as long and with the focus on areas of change; a summarised profit and loss account, based on the format used in the full financial statement; a statement of total recognised gains and losses; a summarised balance sheet using similar format to the full statement; a summarised cash flow statement using the FRS1 heading; segmental information for turnover and operating profit; an analysis of discontinued and continuing activities and an earnings per share figure.
With all that information in the public domain at the prelims stage, the ASB itself admits that there is a big question mark over the role of the annual report, especially as more Aunt Agatha’s are being encouraged to switch from the full annual report to summary financial statements.
BAA, for instance, claims that the majority of its 446,000 shareholders have opted to receive the 16-page annual review instead of the 74-page full monty.
Where this will lead is not clear. The ASB is insisting that the annual report is central to financial reporting, mostly because it gives the details which are not available elsewhere – though for the vast majority of shareholders those legally required details appear superfluous.
The latest move on prelims is sensible and overdue. But it is clear that this is only an interim measure before a more thorough overhaul of how quoted companies present their financial results throughout the year – a problem which will not be uppermost in the minds of harassed analysts as they struggle to cope on “P” day next spring.