Auditors need to work together to agree ways to reduce the complexity in corporate reports and make them more meaningful, according to a report from ICAEW which says collective action is necessary because company reports are still too long and fail to meet the needs of key stakeholders
The ICAEW report, Audit insights: corporate reporting, draws on input from a working group of external auditors from BDO, Deloitte, EY, Grant Thornton, KPMG, Mazars and PwC.
The trend towards longer annual reports is an area of concern with companies regularly publising up to 200 pages, while banks routinely put out reports of up to 600 pages, which makes it hard to hold companies to account for their performance.
The report claims that many preparers ‘still err on the side of caution and continue to disclose voluminous amounts of information rather than risk facing regulatory criticism’.
The ICAEW report is intended to provide a practical guide to improving corporate reporting and to build momentum for a change.
It identifies four ways to improve the quality and clarity of corporate reporting, including:
- companies should only provide meaningful and relevant information that will produce a coherent business story;
- the Financial Reporting Council (FRC) should provide more examples of good practice and reassess the regulations to reduce disclosures and make them more relevant;
- auditors should help companies by producing an informative audit report; and
- investors should be more active to influence what is disclosed.
Eamonn McGrath, chair of ICAEW’s audit insights working group on corporate reporting, said: ‘Many company reports have become too long because of the impact of more rules and regulations for disclosure.
‘Already we are seeing reports that are verging on compliance exercises with less focus on good communication.’
The report says the solution is for companies to be ruthless about what they throw out, for auditors to be more challenging, for regulators to support initiatives that allow companies to publish information outside the annual report and for investors to be clearer about what information they need.
McGrath said: ‘We are not saying that relevant and meaningful information should not be disclosed.
‘The corporate report need not contain all the wider information but could easily signpost where it is available. The internet has given companies a huge opportunity to offer access to information elsewhere online.’
Click here to read the ICAEW report Audit insights: corporate reporting
