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CFOs want responsibility, not more rules, in narrative reporting, finds major new report

More flexibility needed find ACCA and Deloitte

27 September 2010

The growing complexity of rules and standards is at risk of seriously limiting the usefulness of narrative reporting, warns a major new report from ACCA (the Association of Chartered Certified Accountants) and Deloitte.

Hitting the notes, but what’s the tune? collates the opinions of some 230 chief financial officers in listed companies across nine countries on the current challenges and future shape of narrative reporting in annual reports.

The report finds that the divergent needs of shareholders and regulators are leading to overly-complicated and compliance orientated reports.

Professor Isobel Sharp, Deloitte Audit partner, explains: “Companies are trying to serve two masters at the same time. They want to inform shareholders of what is happening in the business. They need to satisfy regulators by meeting all the disclosure rules. To achieve succinctly and simultaneously both outcomes in the same report is a major challenge.”

Helen Brand, ACCA’s chief executive says: “Even before the global financial crisis, questions were being raised about the validity of current corporate reporting. As our report finds, increasingly voluminous and complex regulatory requirements are seeing the story of business performance drowned out by a mountain of detail.”

The report found that:

  • Meeting legal and regulatory requirements was the most popular driver (83%) for narrative disclosures. Shareholders’ needs came marginally (82%) behind this.
  • 71% of respondents consider the top critical challenges in producing a narrative report to be the number of requirements placed on preparers, and the cost and time involved in preparing the report.
  • The interviewees see the five most important disclosures for shareholders to be: explanation of financial results and financial position (identified as of high importance by 87%); identifying the most important risks and their management (67%); an outline of future plans and prospects (64%); a description of the business model (60%); and a description of Key Performance Indicators (KPIs) (58%).
  • In the aftermath of the global financial crisis, 78% of preparers consider that the discussion of risks and their management is of greater interest.
  • Looking at improving future narrative reporting, 65% of interviewees say that they would like a reporting environment with more discretion and less regulation, 58% cite the inclusion of external auditor opinion, 57% believe there should be more emphasis on forward-looking information and 51% ask for IASB guidance. The IASB is due to issue guidance on narrative reporting, entitled Management Commentary, at the end of October 2010.

Professor Isobel Sharp concludes: “We need to debate the future direction of narrative reporting. Do we give preparers’ more responsibility, or, do we let the relevant authorities issue more rules for preparers to obey? Less data may provide for better information.”

Helen Brand concludes: “Today’s reporting is meeting the data requirements but is it information? Our results suggest not. Preparers seek more discretion and less regulation.”

Quotes from interviewees in the report:

US: Quote from Ron Dissinger, chief financial officer, Kellogg Company
Setting out how the Kellogg business has performed is, Dissinger feels, the main thing investors look for from the narrative within the company’s annual reports.

“They want to know about the state of the business,’ he says. ‘They can read and interpret our financial statements. What they want set out in the narrative are clear statements on the state of the business and drivers of performance.”
UK: Quote from Eric Hutchinson FCCA, chief financial officer, Spirent Communications plc
Eric Hutchinson is a Fellow of ACCA and he also believes in the need for greater clarity in explaining companies’ business models.

“The most valuable part of the narrative report for users is the business review,” he points out. “They want to know what the company does, how it generates income and who its customers are – plus, are those customers going to come back next year, and are they going to buy more or less? With all the complexities of language that tend to sit around the business review and reporting, it can be quite difficult to penetrate.

“I think that a lot of readers of accounts do find it very difficult, with any company, to really understand what its business is. I would like to see, in the annual reporting at least, a clear statement of what the company does in plain English, followed by a clear explanation of how it generates income.”

And while many companies have increasingly complex business models, he believes that the overall rationale for a company’s existence can always be conveyed concisely and clearly.

“If you can’t set this out on one side of paper, in fairly large type, then there’s something wrong.”

Singapore: Quote from Amos Ng FCCA, chief financial officer, Straco Corporation
Compliance has not been set up in opposition to users’ needs, says Amos Ng, but to reinforce them: ‘Things like the code of corporate governance and directors’ remuneration are pretty important disclosures, whether you are shareholder or staff. At the end of day, regulators are there to serve the needs of stakeholders and this is the perspective from which they start.

“Achieving compliance with the laws and rules governing narrative reporting lends credibility and reliability to your annual reports. If things were left entirely to the preparer, this would lead to varying standards.”


For further information, please contact:

Nick Cosgrove
ACCA Newsroom
+44 (0)20 7059 5989
+44 (0)7963 496144

Jo Ouvry, co head of PR
Deloitte LLP
+44 (0)20 7 303 4820
+44 (0) 7939 514 426

Notes to Editors

1. About the report
A pdf of the report is here:
The report is based on telephone interviews with 231 CFOs and group The report is based on telephone interviews with 231 CFOs and group finance directors from companies based in Australia, China, Kenya, Malaysia, Singapore, Switzerland, the UAE, the UK, and the US in April and June. Further in-depth interviews were carried out with 7 other CFOs from Kellogg Company (US), Centum Investments Company Ltd (Kenya), Dubai Insurance Company (UAE), Exco Resources (Australia), Straco Corporation (Singapore), Spirent Communications plc (UK), and Time dotcom (Malaysia) and three representatives from investor organisations (the Council of Institutional Investors (US), the Association of British Insurers (UK) and the National Association of Pension Funds (NAPF).

2. About ACCA
ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. We support our 140,000 members and 404,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,000 Approved Employers worldwide, who provide high standards of employee learning and development.

3. About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see for a detailed description of the legal structure of DTTL and its member firms.

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

Member of Deloitte Touche Tohmatsu Limited.

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Media contacts

Jo Ouvry
Deloitte LLP
Job Title:
Co-Head of PR
+44 (0) 20 7303 4820

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