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Lose the excess reporting baggage

THE SIZE of corporate accounts has increased threefold in the last 10 years. However, as the size of and complexity of annual reports has grown, the ability to understand them and their usefulness has shrunk.

The financial reporting community, including investors, is concerned about the increasing size of annual reports. Readers are now so blinded by data that many key messages about a company’s performance are drowned by the detail.

Investors and fund managers rely heavily on annual reports and accounts. In the current economic climate, it is more vital than ever that those seeking to assess the financial health of a company in order to make an investment decision can do so clearly.

The consensus is that the burgeoning size of annual reports has been driven by a compliance culture rather than an assessment of what might be useful for investors, analysts and other users. Some would argue that financial statements in annual reports are drawn up under a straightjacket of complex international accounting standards rules.

It’s time to focus on what is important and relevant, so that accounts are more meaningful to users. However, the challenge has always been discovering where to cut without affecting reports’ usefulness.

I used to be a teacher, so I have used a few red pens in my days. As part of a joint working party, ICAS, working with the New Zealand Institute of Chartered Accountants (NZICA), conducted its own red pen exercise to reduce the amount of disclosures in financial statements.

Analysing model financial statements, the result was a likely 30 per cent reduction and a better communication platform that focuses on what is important.

What makes this review unique is the fact that ICAS and NZICA were approached directly by the International Accounting Standards Board (IASB), with a request to help reduce the volume of disclosure requirements in International Financial Reporting Standards (IFRS). This demonstrates a growing momentum for change on an international level.

The working party’s report, Losing the Excess Baggage, was presented to 120 leading finance directors and senior accountants at a recent event in London. The call to cut financial statements by a third was backed by the majority of FDs in attendance, recognising that excess baggage always carries an additional cost.

Finance directors tend to be the ones who are tasked with navigating the disclosure maze for their companies. More effective disclosure is the one thing that’s desperately needed for FDs. Honest views from many of the UK’s leading senior finance directors highlight that the current approach to financial statements must change.

The Financial Reporting Council published its own consultation in April, debating how to cut the clutter from annual reports. As the ICAS and NZICA report is now in the hands of the IASB for review, we will perhaps have the final knockout punch to bring down this unbeaten heavyweight.

Anton Colella is CEO of ICAS, the professional body of chartered accountants

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