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Are your annual reports and accounts up to scratch?

08 September 2010

In times of continuing poor economic and market conditions, company reports and accounts are being scrutinised by investors and regulators as never before.

A recent report by the Financial Reporting Review Panel has highlighted instances of poor practice and makes suggestions about how to improve company accounts. Smaller listed and AIM quoted companies were of particular concern. Does your company follow these guidelines?

What makes a ‘good’ set of report and accounts?

Accounting information must achieve basic compliance with the fundamental requirements of the law, accounting standards and be complete and accurate. It must also follow the spirit as well as the letter of accounting standards.

What other characteristics make for a ‘good’ annual report?

A single story
The narrative at the front must be consistent with the figures at the back – there must be no surprises hidden in the accounts.

How the money is made
The business review must give a clear and balanced account and explain the company’s business model and the relevant features of the company’s performance – good and bad. This is to enable shareholders to assess how directors have performed their duties and the appropriateness of accounting policies selected and applied. 

What worries the board?
The risks and uncertainties described in the business review are genuinely those that the board worries about. A bullet point ‘boilerplate’ list of risk factors without the company explaining why they are important to the company is not acceptable.

If items have been discussed throughout the year these should be included. The reader must be able to understand why these are important to the company and the accounting estimates and judgements must be clear.

Consistency
Figures and KPIs referred to in the business review must be clearly reconciled to main headings in the accounts – and any adjustments explained.

Cut the clutter
Avoid repetition. Highlight important messages, policies and transaction. Support them with relevant context and don’t obscure them with immaterial detail and unnecessary disclosures.

Companies and their advisers should interpret guidance on disclosures as guidance and make judgements about the relevance of those disclosures to the company in question. Unnecessary information should not be included to ‘tick a box’.

Clarity
Use precise language. Avoid jargon and boilerplates. Explain complex accounting and reporting issues clearly.

Summarise
Report items at an appropriate level of aggregation. Ensure tables of reconciliations are supported by and consistent with the narrative.

Explain change
Explain properly significant changes from the prior period.

If you are worried about how to interpret these guidelines or would like to chat about any area of concern, please get in touch with your usual contact or any member of the corporate team.

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Get in touch

Damien Phillips

Associate
T: 03700 86 8793
I: +44 (0)118 965 8793
E: damien.phillips@shoosmiths.co.uk