A significant number of ASX200 companies are now ‘cutting the clutter’ from their annual reports according to a KPMG study of financial reports. Page numbers and notes to the accounts are considerably reduced on last year, immaterial disclosures are being removed, and others grouped together in a more meaningful way, the survey finds.
Over the past 12 months there has been considerable market support for the ‘de-cluttering’ initiative. ASIC, the corporate regulator and the AASB, the accounting standard-setter, have both publicly encouraged companies to address the length and complexity of their accounts and to cut ‘disclosure overload’. The ASX Corporate Governance Principle 4 also came into effect last year which makes it clear that financial reports are only one part of the corporate reporting portfolio, putting the onus on companies to make all their reports as readable as possible.
Duncan McLennan, KPMG National Managing Partner – Audit and Assurance, said: “Over the past 12 months there has been encouraging progress by many listed companies in responding to the demand for easier-to-read corporate reports. In our view those who choose not to do so run the risk of being seen in a comparatively poor light by the market, at a time when competition for investment is keen. It is encouraging to see that financial reports are again being seen as a useful forum to inform and communicate to investors and other stakeholders rather than as compliance exercise.’
The key findings of the survey were:
KPMG encourages organisations still to take the plunge on cutting the clutter and follow the “3 R’s” in their annual reports:
Remove immaterial or irrelevant financial report disclosures that have built up over time.
Re-order and re-label accounting policies and detailed notes so that they better reflect the key financial measures and focus on areas of most relevant.
Re-write technical wording into plain English, whilst still fully complying with relevant accounting standard and regulatory requirements.
Duncan McLennan said: “While the last 12 months has seen encouraging progress, this should only be regarded as the first step to better business reporting. To maximise the benefits of de-cluttering, organisations need to take this approach beyond the financial report and include remuneration reports (which have grown in length and complexity), corporate governance statements and Operating and Financial Reviews. We would encourage them to consider what reports should make up their broader Corporate Reporting Portfolio, so they can best meets the needs of all users such as regulators, investors, employees and other stakeholders”.
KPMG adds that it is not just ASX listed companies that can benefit from this strategy – others would include:
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