• Forthcoming Companies Act will change future annual reports, encouraging more forward looking disclosures from directors
• Discussions of employee matters & the environment have improved

Deloitte, the business advisory firm, has today announced details of its annual survey of listed companies and how they have responded to the changing regulatory landscape. Key findings include the length of annual reports almost doubling over the last 10 years (from an average of 45 to 85 pages) and the number of formal Operating and Financial Reviews (OFR) decreasing from 41% to 20% over the last year.

Isobel Sharp, audit partner at Deloitte, comments:
“The increase in length of annual reports is a consequence of financial statements lengthening to cope with IFRS. The halving of the number of formal OFRs seems dramatic, but does not mean that the information content is reduced. Companies are dropping the formal name to ensure that they are not forced into a particular framework or to explain any non compliance with the official recommendations.  But three quarters of our survey companies clearly have regard to OFR principles in preparing their narrative reports.

“Information about the future is improving, but is still patchy. The anticipated clarity on directors’ liability for their report, expected in the forthcoming Companies Act 2006, should encourage more forward looking disclosure when the law comes into effect. The provision is designed to encourage directors to provide more meaningful disclosures, particularly relating to the future, in the knowledge that, in the absence of bad faith or recklessness, they will not be liable for statements not borne out by future events.”

Other key highlights include:

• Discussions of employee matters and the environment have both increased when compared with 2005 reports, from 67% to 95% and 54% to 84% respectively; and
• 45% of companies, formally adopting or clearly recognising OFR principles, presented key performance indicators (KPIs), with the average number of KPIs increasing from 4 to 6.  This is not surprising given the extensive public discussion on this subject over the last year and that their use is sought in the statutory Enhanced Business Review (EBR).

“The introduction of the statutory EBR, the changes in the forthcoming Companies Act 2006 and the introduction of the Transparency Obligations Directive into the UK will ensure that narrative reporting receives continuing scrutiny over the next few years. Writing to reason, as opposed to rule, will, it is hoped, remain the norm for the bulk of narrative reporting so that directors can faithfully write their own account of the business.”

The Deloitte report, ‘Write to reason - Surveying OFRs and narrative reporting in annual reports,’ includes details and findings of the analysis of current practice, guidance on presenting information in OFR, an outline of current and proposed requirements in the EBR, and finally questions and answers for better practice in narrative reporting.

Notes to editors

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.