Companies need to learn the lessons from the financial crisis, and improve the narrative within company report and accounts, said Stephen Haddrill, chief executive of the Financial Reporting Council, when he spoke to the SPS recently.
“More and more information does not necessarily mean better and better disclosure; clarity is essential,” he said. “It is fundamentally important that good reporting gives investors and the public an understanding of what the business is trying to achieve, and that its business model and strategy is clear.” The narrative plays a central part in achieving this.
The introduction of principles-based accounting has done much to improve reporting. “We have learned from the financial crisis is that it’s not just about ticking boxes and boiler plate explanations. The right principles must be adopted in setting out the numbers and the strategy. We need to get the right behaviours embedded in the preparation of corporate accounts and reporting, not just complying with the rules,” he said.
However, replacing rigid reporting rules with overarching objectives and non-binding guidance, brings its own challenges. “Under this system good judgement needs to be exercised in determining the numbers that go out.” It also needs to be accompanied by a narrative that effectively puts those numbers in context, Haddrill said: “Investors need to be able to interpret the data, and cannot without a clear sense of what the strategy is.”
To this end, organisations need to involve senior executives in the reporting process. Haddrill explained: “Writing a narrative requires thought and care and the engagement of senior managers as a whole. It isn’t a back office function that should be done under great time pressure, it is a front of house strategic level activity and needs to be treated as such.”
Haddrill will be giving the keynote speech on these subjects at the Strategic Value in Corporate Reporting Awards, organised by the Strategic Planning Society, celebrating excellence in strategy disclosure and commentary in annual corporate reporting.
The awards take place at 6pm on 28 April at the Royal Over-Seas League in London. Anyone wishing to attend should email SPS chairman Ian McDonald Wood at email@example.com.