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Business advisory firm Deloitte has announced details of its annual survey of listed companies’ annual reports. The most striking finding this year is the consistent feel to the narrative sections of annual reports, with individuality losing out to uniformity.

Isobel Sharp, audit partner at Deloitte comments, “Every year, we report size increases in annual reports. This year, another 5 per cent was added to take the average length to 89. We need action now to reverse this trend.”

She adds that 2007 reporting also shows that companies are writing to order, with annual reports’ individuality losing out against uniformity. This may be because companies are making increasing use of model narrative reports, because of the need to comply with complex rules and time pressures.

Increase in size 

There will be more rules for 2008, with section 417 of the 2006 Companies Act coming into force. The Financial Reporting Review Panel is believed to be actively reviewing certain narrative reports.

The study found that annual reports have again increased in size, with the average number of pages at an all time high of 89, compared to 85 in 2006 and 45 pages in 1996.

The narrative reporting sections are increasing in size. The largest increase was in the top 350 group of companies, where the narrative reporting section has increased from an average 70 to 77 pages.

The number of formal Operating and Financial Reviews (OFRs) has decreased from 41 per cent in 2005 to 20 per cent in 2006 to 10 per cent in 2007. The official title, the OFR, is no longer being used to reduce the scrutiny burden on companies.

The number of companies including Key Performance Indicators (KPIs) in their Enhanced Business Reviews (EBR) increased considerably from 67 per cent in 2006 to 81 per cent this year. The average number of KPIs is six but there continues to be a wide range in the number of KPIs, with one company in the top 350 disclosing 29.

Balance 

While the legal requirements are that an EBR must include a description of the principal risks and uncertainties facing the company, only 90 per cent of the companies clearly met this.

In particular, only 67 per cent of companies included information on non-financial risks such as on strategic, operational and commercial matters.

“There was evidence of “balance” in all the EBRs reviewed. It is official: directors do not write only about the good things,” Sharp says.

The Deloitte report Written to order, includes details and findings of the analysis of current practice, guidance on presenting information and an outline of current and proposed requirements in the EBR.

This year there is also a quiz to test readers’ knowledge of narrative reporting. Thus, some may wish to start at the end and depending on the results determine how much more of this report should be studied in detail. An illustrative OFR is not included in this publication but is to be found in another Deloitte publication iGAAP 2008 Financial statements for UK listed groups, also released this week.

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Related links

• Deloitte
• Written to order - Surveying OFRs, EBRs and narrative reporting in annual reports