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Write from the start: surveying narrative reporting in annual reports

Ad hoc addition of new rules has led to disordered reporting

Deloitte, the business advisory firm, has today launched the findings of its regular analysis of what companies are reporting in the narrative sections (parts outside the audited financial statements) of their annual reports.

Isobel Sharp, audit partner at Deloitte, comments: “The main message from this year’s survey is the realisation of how much the narrative reporting requirements have grown like topsy over the years. New requirements have been bolted on and new extensions will be added in 2008/9. The result is that the narrative sections of annual reports can have similarities with the famous Ronnie Corbett monologues, namely lots of diversions. Unfortunately new rules governing narrative reporting mean that this is unlikely to change in the future.”

The annual reports included in the survey were taken from all listed companies, the population of which was split into two categories being investment trusts, which make up 38% of listed companies, and other companies.

The main findings of the 2008 survey for companies other than investment trusts are:

  • the average length of the annual report appears to be levelling out for listed companies. The increase was only 2% on 2007, increasing the average length to 96 pages;
  • annual reports are 34% longer than they were in 2005;
  • narrative reporting makes up 54% of the annual report, a 3% increase on 2007;
  • the total number of formal Operating and Financial Reviews (OFRs) has decreased again to 9%. In 2005 46% of companies had an OFR reducing to 25% in 2006, then to 13% in 2007. Many companies continue to give OFR-style information but have dropped the OFR tag to reduce the compliance burden on them;
  • a new requirement for a directors’ responsibility statement, introduced by the Financial Services Authority and emanating from the EU Transparency Obligations Directive, was met only by 54% of relevant companies;
  • much of the commentary on the state of the economy was generic in nature and there was very limited discussion on how economic conditions would affect individual industries or companies; and
  • 85% of companies include a summary information page at the beginning of their annual report. This is no doubt a response to the length and complexity of reporting.

Isobel Sharp continues: “Overall the results for the investment trusts were reasonably consistent with 2007, both for the average length of report and the ratio between narrative reporting and financial statements. In contrast to other companies in the survey, none of the investment trusts chose to adopt a formal OFR. However, all which fell under the relevant legislation included a responsibility statement.”

Deloitte will be publishing later in 2008 “Right to the end” which looks at the audited financial statements for the same companies surveyed in this report.

For more information, download our  Write from the start - surveying narrative reporting in annual reports.

ends

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.  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 acts or 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.

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