A New Approach to Annual Reports
December 4, 2008 by Mary Adams
I recently happened upon an interesting site that I somehow hadn’t found until now called Report Leadership.
It was a joint effort last year by the Chartered Institute of Management Accountants (CIMA), the Corporate Reporting group at PriceWaterhouseCoopers, and the design firm Radley Yeldar.
The group took it upon themselves to build a new annual report. The site explains their thought process and includes a sample web-based annual report for a fictitious company.
Having been a consumer of annual reports since my early career as a high risk lender, I can tell you that the quality of the information and the presentation is far superior in this example. David Philips of PWC explains in one of the videos that their main goals were:
- Effective communication
- Modelling the future
- Rethinking financials
This effort was made in the UK. I ask myself why we cannot achieve this kind of communication in the US. For now, I think that people are still stuck in their legalistic, by-the-rules approach to reporting. There is a real mismatch between our fast-changing global economy and our approach to information.
Why is this important? Because companies leave money on the table with their investors, their potential merger partners, their competitors and their employees. I’m sure many would dismiss me as naive. But I have to tell you that consumers of financial information should rise up and start asking tough questions (as if the current financial crisis weren’t enough of a motivation). Analysts, investors, board and managers should ask:
- What are the key drivers of corporate success?
- What are the key assets of this organization?
- How will we know we are on track to achieve our strategy?
- And demand that this information actually get reported to them
We still are not facing up to the incredible weaknesses of a system that relies on historical reporting based on tangible assets only. The knowledge economy is not going away. Stakeholders need to start asking for better information and demanding better reporting.
[...] my post from awhile back on a sample site built by PWC to show a different approach to corporate reporting. [...]
I’m not sure of the details behind this new approach to annual reports, but I suspect that it is using XBRL. This is a new mark-up language for web communications (internal and external) that takes the important data chunks and then tags it. Web sites can then be set up to format these tagged info chunks so the recipient of the report is the one responsible for formatting and presenting the information. These tagged info chunks are standardized across companies so that information can be easily gathered, and consistently processed for analysis and comparative purposes.
Many government reports (e.g. SEC) are allowing or even requiring XBRL submissions of formal, required financial reports. This allows for transparence of the corporation among all of its stakeholders – government, financial institutions, even internal departments.
This is more popular over in Europe than here in the US as the US is usually slower to pick up on standards – especially international standards.
Thanks David- Yes, XBRL is an important step forward in corporate reporting and will make analysis of annual report narrative much easier. However, there is still work to do in the narrative–most companies are not doing a good job of describing the intangible drivers of corporate success.
Here are some references on XBRL:
http://www.i-capitaladvisors.com/2008/12/10/the-best-writing-yet-on-intangibles-from-aicpa/
http://icrating.com/blog/2009/01/12/intangibles-reporting-and-xbrl/
http://icrating.com/blog/2008/07/14/xbrl/