UK: Deloitte Annual Report Insights 2014 - Providing A Clear Steer

Last Updated: 13 January 2015
Article by Deloitte Audit Group

1. EXECUTIVE SUMMARY

Welcome to the latest edition of our annual report insights report, 'Providing a clear steer'.

It has been an eventful year with the introduction of the new strategic report, debate around going concern and risk reporting and the need for directors to state that their annual report and accounts as a whole were 'fair, balanced and understandable'.

Our report looks at how companies have gone about dealing with these challenges, the extent to which they have met the requirements and innovated, plus how well they have linked the narrative reporting to the financial reporting. And from this mass of information we have identified areas for improvement as well as providing best practice examples, enabling companies to tell their stories effectively and provide a clear steer to their readers.

Here Veronica Poole, head of UK corporate reporting within Deloitte, and William Touche, UK head of corporate governance within Deloitte, draw from their experience of the year, share their insight and thoughts on the highlights from the survey and look at the challenges ahead.

Narrative reporting

Q: Companies were really up against it last year. How well did they cope with all the changes they had to face?

A: Overall I think they have done well. All hundred companies surveyed included a strategic report although they really struggled to cut clutter. While we had hoped that the size of reports would start to fall, instead they have risen again. The average length of an annual report is up from 122 to 132 pages, much of it driven by an increase in the length of narrative reporting, in particular the new style remuneration reports. But on the plus side some companies have used the opportunity presented by all the changes to restructure their narrative reporting. This is important and it will hopefully give them a good foundation to embrace the Financial Reporting Council's latest messages on clear and concise reporting.

Q: With reports getting longer how cohesive did they tend to be in telling their story? Were preparers managing to link together all the different components?

A: Somewhat disappointingly there was a continued lack of cohesiveness, or in the FRC's words linkage, between the story told in the narrative and the numbers in the back. Whilst the majority of companies made efforts to link some parts of their annual report, in particular the discussion around strategy to their KPIs, only 29% showed up-front, in their summary pages, how their report as a whole linked together. But all in all, companies are making steps in the right direction.

Q: What does the survey tell us about non-GAAP measures? They have been exercising regulators recently and there is a raft of proposals from various regulators and other bodies.

A: Non-GAAP measures continue to be an important feature of annual reports: 86% of companies presented them in their summary pages and of those over 60% gave them greater prominence than associated GAAP measures. Furthermore, most companies use them on the face of the income statement. These findings will not please regulators. IOSCO is currently consulting on the use of non-GAAP measures and ESMA is expected to publish its guidelines on the subject before the year is out, so this is certainly an area that companies need to think about carefully when they prepare this year's accounts.

Q: As we move into the new reporting season what other corporate reporting issues should companies be focusing on at this time?

A: The new proposals around the reporting of going concern and risk reporting will come into effect for periods commencing on or after 1 October this year and merit close attention. Country-by-country reporting also comes into force from 1 January 2015 and will have a big impact for those in the extractive industries.

Corporate governance

Q: When it comes to corporate governance what are the messages we can learn from the survey?

A: In terms of corporate governance messages from our survey, we have to remember that we have a comply or explain model in the UK, but nevertheless it is still quite surprising that only 57% of companies reported they were fully compliant with the UK Corporate Governance Code, which was the same level as the prior year. The most common areas of non-compliance are around the independence of directors and the composition of audit committees. And as we know the FRC is encouraging much more meaningful explanations for non-compliance to be included. But boards are making some, albeit slow progress, on getting women into the boardroom. 73% of companies have a woman on the board but the overall number of female directors remains quite disappointing – from 13% to 15%. There is still a need to boost the number of female directors on UK boards.

Q: This last year saw the introduction of the requirement for the directors to state that the report and accounts were "fair, balanced and understandable". How well did companies cope with that?

A: All but four of the companies in our sample included the new fair balanced and understandable statement, typically in the directors' responsibility statement. And those four which did not were at the smaller end of the listed company spectrum. What was encouraging was that 23% chose to provide some description of the process they had undertaken to support the statement by the board. We hope that this enhances shareholder confidence that the new requirement was taken seriously and that the governance of the annual reporting process was robust.

Q: Audit committees were also given greater responsibilities this last year. How did that work out?

A: Audit committee reporting has made a giant leap forward. Now two thirds of companies made the audit committee report a distinct section within the annual report, compared to only 45% – less than half – last year. This reflects the greater profile being given to the audit committee's stewardship and reporting responsibilities. And audit committee chairmen are now taking much more ownership of the report as the very personal introductions imply. Nearly three quarters of companies report in this manner compared to less than half in the prior year. And of course the reporting of the significant issues considered by the audit committee coupled with the extended reporting by auditors provides investors with a much greater basis for engagement.

Q: And what challenges lie ahead?

A: On the governance side, as with the world of narrative reporting, preparers will have few disclosure changes to contend with this year – for December 2014 year ends. However, the FRC's finalised guidance on risk management and internal control is now out and companies are going to need to look closely at this, the governance implications of the new viability statement and the other revisions to the Code particularly on internal control and the reporting of weaknesses from the directors' internal control review. And these apply for accounting periods beginning 1 October 2014.

Financial statements

Q: Moving back through the book to the financial statements what were the highlights amongst the back half of the report?

A: A few companies are innovating in areas like presentation of accounting policies and are including narrative reporting in their financial statements. And non-GAAP measures are proving as popular as ever. As mentioned, some 68% included such metrics in their income statements. Encouragingly, many were adhering to the FRC's reminders at the end of last year about the use of exceptional items, in that they were not describing recurring items as exceptional. And, even though there was pressure to cut clutter, some companies still included voluntary disclosures. Some 44% included net debt reconciliations or similar information and 10% included insight on tax governance and strategy.

Q: And what are the challenges ahead?

A: 2014 will be the first year that many companies have had the IASB's package on consolidations to deal with, including all the new disclosures required by IFRS 12. Looking further ahead there is the newly published standard on revenue recognition to prepare for.

And finally

Q: Integrated reporting was a much discussed topic through the year. How far did the discussions make it through into the reporting?

A: With the focus on growth, long term investment and the broader role of business in the society, integrated reporting offers an excellent opportunity for companies to tell their value creation story. Although only five companies surveyed mentioned integrated reporting, the vast majority, 80%, already discuss value creation in their reports. Of course, integrated reporting is not really just about reporting, it is about integrated thinking and behaviours, integrated from strategy and business model to business performance, from internal performance management measures to external reporting.

The strategic report framework in the UK creates an excellent enabling environment and allows companies to experiment and innovate. Our survey and its findings will also help companies to innovate and enhance their reporting by drawing on the many best practice examples we have provided. Hopefully, with the developments around integrated reporting and the FRC's encouragement for clear and concise reporting companies will feel empowered in their efforts to provide a clear steer to the readers of their reports.

To read this Report in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions