Annual reports need to provide more in-depth strategy discussion, backed by relevant operational KPIs so that investors can take a longer-term view of corporate health and performance – according to KPMG’s second annual Global Survey of Business Reporting.
What’s wrong with corporate reporting?
Investors claim that reporting is not fit for purpose anymore. On the other hand, companies complain about the burden of reporting and perceived short-terminism of investors. Is there anything companies might do about this disconnect and if yes, what are the critical aspects?
According to KPMG’s second annual Global Survey of Business Reporting, an evaluation of 270 annual reports from larger public companies in 16 countries, amongst others Switzerland, the short-term focus of corporate reporting is readily apparent. One side of the problem is that companies are focusing their performance reporting, strategic discussion and risk assessments on short-term financial objectives, resulting in significant gaps in the information reported to investors and other readers of annual reports.
The survey highlights that, of the reports surveyed:
- 44 percent do not look beyond short-term initiatives when discussing strategy
- Only 9 percent provide a 5-year track record of operational performance
- Only 11 percent show how a company’s risk profile has been managed over time
While some companies are beginning to report on the most significant elements of business performance outside of financial results, there is room for improvement.
Giving investors the information they need
Currently, few reports show how a business is progressing against its operational priorities; only 17 percent tell investors whether the business is winning or retaining customers and only 7 percent provide information on order-book or sales run-rate to explain how the baseline performance of a business has changed. Indeed, 73 percent of the reports surveyed do not discuss customer-focus as a key business objective.
Balancing short-term discussions of financial performance with a longer-term view of business success
The survey looked at performance information across six key areas of business health, but only 11 percent of the reports came close to covering these. While 58 percent highlighted performance metrics related to products, only 41 percent reported on customer-related indicators, 40 percent on efficiency indicators, 35 percent on staffing indicators, 22 percent on R&D indicators and 15 percent on brand indicators.
Corporate reporting needs to find a better balance between reporting of short-term indicators, and metrics that highlight long-term viability and business health of a company.
Reducing clutter, improving clarity
Cutting clutter from the financial report will often be a good start – the IASB’s Disclosure initiative certainly triggered a new wave of such efforts by providing an opportunity for companies to make these statements more relevant. However, to provide context and improve reporting to investors as a whole, a more holistic and fresh look into all other parts of corporate reporting will be needed.
Ask yourself: Would the reader understand how my business works and what the journey over the next 5 years looks like while going through my corporate report? How could accountability for the promises made be ensured and what are critical hurdles (risks) and enablers?
- Full survey: Room for improvement
- Clarity on Business Reporting – Better Business Reporting
- Audit Services at KPMG