Commenting on the launch of the FRC’s guidance on the Strategic Report (available on this link), Tony Cates, Head of Audit at KPMG in the UK said:
“The FRC’s guidance on the Strategic Report could help companies look beyond current year earnings to provide a broader picture of shareholder value creation in their annual reports. The business-centric focus of the guidance is an opportunity for companies to focus their reports on those factors that are most important to the long term prospects of their business. As the KPMG Survey of Business Reporting shows, management teams can do much more to help their investors take a longer term view of business performance.”
Indeed, according to the KPMG survey published today, better business reporting is needed to support better investment decision making. KPMG examined 90 companies’ reports from around the world in the KPMG Survey of Business Reporting published today. The survey questions whether the historical focus of today’s annual reports is driving short term decision making by both investors and company management. It also reveals a disconnect between the key drivers of business value and the content of reports.
For example, within the sample analysed:
Larry Bradley, Global Head of Audit at KPMG International, said: “Management teams are telling KPMG member firms that they are frustrated by apparent investor short-termism. I believe that better business reporting could provide investors with the objective information they need to take a longer term view.”
KPMG International makes four suggestions to help reports align more closely with investor decision making:
1. Align performance measures with the drivers of shareholder value
Few companies report performance measures over the most commonly identified drivers of business value
2. Recognise that the financials are only the start of the story
Operating performance measures can provide leading indicators of business prospects in areas that historic financial metrics cannot
3. Join up reporting content
Many reports leave unanswered questions by raising business issues and opportunities without explaining the progress made in managing them
4. Refocus reporting culture
In addition to meeting disclosure obligations, companies also need to ensure that they take a more business-centric approach, and that they understand the information their audience will need for the matters raised in their report.
Matt Chapman, KPMG in the UK’s Better Business Reporting leader, and author of the survey, concluded: “Businesses that are investing in their long term future should have a strong incentive to make this investment more visible. We need to recognise that the financials are only the start of the story, and better align performance measures with the drivers of shareholder value to support this.”
The KPMG Survey of Business Reporting is available at www.kpmg.com/betterbusinessreporting
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Margot Cowhig, KPMG Corporate Communications
T: +44 (0) 207 694 4246
M: +44 (0)7920 274856
KPMG Press Office: 0207 694 8773
Notes to editors.
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have more than 155,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.