A Case of Lengthier Annual Reports - Essay Example

?A Case of Lengthier Annual Reports Introduction An annual report comprehensively provides stakeholders and other interested individuals or institutions an overview of a company’s activities and financial performance throughout a given year, usually the one preceding the current year. As such, annual reports contain reports by the chairperson, the CEO, and the auditor. It also includes the company’s mission statement and pertinent financial statements (Holmes, Sugden, & Gee, 2008). While annual reports used to fall considerably below the 100-page mark during the last decade, a survey by business advisory firm Deloitte shows that in 2010, the average length of annual reports has reached an all-time high of 101 pages (Deloitte, 2010). Interestingly enough, the lengthiest reports are littered with more advertisement-like photographs and captions than relevant narratives and figures. These are the supposed culprits of reports being lengthier than they used to be. Such a phenomenon is of primary interest because of the impact that this has on the ability of such reports to serve their true purpose. Questions arise as to whether lengthier reports actually provide readers with more information or additional confusion? Do the long reports indicate that companies are revealing more of their respective businesses’ actual performance or are they merely an effort to gloss over weaknesses that new regulatory rules aim to draw out? Do lengthier reports mean more substance or just more clutter? This paper attempts to provide answers to these questions and adequately support the claims made herein by extracts from actual company annual reports. Company reports included are those of Ericssion, Carlsberg, and Walmart. Reasons for the increasing length of annual reports According to Isobel Sharp, an audit partner at Deloitte, annual reports are significantly increasing in length because companies are now revealing their company’s business risks and even having important performance indicators disclosed in their reports. Moreover, corporates now provide a director’s responsibility statement, a requirement introduced around four years ago as a consequence of EU’s Transparency Obligations Directive (Deloitte, 2010). Essentially, the many rules that are brought up in recent years are also being blamed for the consistently rising trend in annual report length. However, the Financial Reporting Council (FRC) of UK points out that company reports in general are trying to please too many users at the same time, hence the almost unstoppable increasing trend in the length of annual reports (UK FRC, 2010). Preparers try to put in as much additional information as they can in an attempt to make the reports as appealing to current and prospective investors as possible (Campbell & Slack, 2008). One company that illustrates this is the 163-page Annual Report by the Carlsberg Group of companies which feels so much more like a 163-page advertisement, with pages that are more fitting in a magazine than in a business report. On the other hand, Boeing’s annual report cannot be more straightforward in its layout and content. Yet, the company needed 156 pages to provide all the data needed and required by regulatory institutions. These two examples illustrate that the burgeoning lengths of annual reports are both a result of additional requirements from regulatory institutions, and the trying-to-please-everybody approach of report preparers. If these requirements are further increased in the future, then lengthier annual reports may definitely be expected. Experts are even hinting that 200 page mark may not be far from being surpassed considering the current trend of adding more and more arguably irrelevant pages to annual reports. More words: For better or for worse? Preparers of annual reports reveal that because of the need to effectively inform shareholders of what is happening in the business, and the need to be able to satisfy the disclosure rules set by regulators, more words are apparently needed (The FRC, 2011). However, one cannot help but think that the lengthy reports are more of a defense mechanism that is necessary to gloss over the company flaws that regulatory rules require them to disclose. In effect, the clutter that is commonly seen in recent annual reports is a result of efforts to obscure relevant and, oftentimes, unsightly information in order to make it a bit more of a challenge for readers to actually find the relevant points about the business’ performance and projected long-term profitability. For example, Ericsson’s 164-page Annual report devotes three pages to its section on regional development and another two pages in global services section when these five pages actually contain information that a one page report would suffice. The Carlsberg Group of Companies annual report likewise contains more than 20 pages devoted to a narrative account of the activities in each and every region that it operates in, and another couple more pages providing a description of its global business, all of which could have been appropriately presented in less than five pages. On the other hand, Walmart’s annual report went immediately into specifics and devoted a mere two pages to information pertaining to its international operations. The financial accounts that it presented were afforded a minimal amount of space and yet regulatory rules were met and sufficient information is provided to the reader, despite being only 60 pages in length. This indicates that it is possible for companies to actually be of an appropriately conservative length and still be able to provide enough data for stakeholders and regulatory entities. Conclusion and Recommendation Preparers of annual reports of recent years are acting very much like a high school sophomore who has a long spiel to say to his parents prior to and upon showing them his dismal report card; there is a need to make figures appear better than they actually are and diversionary tactics are employed to keep the focus away from more important aspects of performance. Similarly, annual reports go to unnecessary lengths in order to make their company performance better than they really are. Regulatory rules do provide the necessary guidelines in presenting the more essential aspects of the business’ management yet these are pushed back to the dim shadows by glossy pictures, fancy narratives, and generally irrelevant information. The FRC suggests that in order for annual reports to be as comprehensive and effective as possible, preparers should focus on the basic purpose of these reports and that is to provide investors with relevant information in terms of deciding how they should allocate their resources (UK FRC, 2010). In addition, investors should also be provided with a clear and honest picture of the company’s status so that they will be able to appropriately assess its management’s leadership. Moreover, the needs of other stakeholders in terms of environmental and employee diversity issues should likewise be carefully and sufficiently addressed by these reports. References Boeing. (2010). 2010 Annual Report. Retrieved November 30, 2011, from Envision Reports: http://www.envisionreports.com/ba/2011/20707FE11E/d2e2b5ec9432426e825952329f64083a/Boeing_AR_3-23-11_SECURED.pdf Campbell, D., & Slack, R. (2008). Narrative reporting: analysts' perceptions of its value and relevance. Retrieved November 29, 2011, from ACCA Global: http://www2.accaglobal.com/general/activities/research/reports/narrative Carlsberg Group. (2010). 2010 Annual Report. Retrieved November 29, 2011, from Carlsberg Group: http://www.carlsberggroup.com/investor/downloadcentre/Documents/Annual%20Report/Annual_report2010_English_Low.pdf Deloitte. (2010, October 20). Swimming in words: surveying narrative reporting in annual reports. Retrieved November 27, 2011, from Deloitte: http://www.deloitte.com/view/en_GB/uk/news/news-releases/3f68dca8434cb210VgnVCM3000001c56f00aRCRD.htm Ericsson. (2010). Take the world with you (2010 Annual Report). Retrieved November 29, 2011, from Ericsson: http://www.ericsson.com/res/investors/docs/2010/ericsson_ar_2010_en.pdf Holmes, G., Sugden, A., & Gee, P. (2008). Interpreting company reports and accounts (10th ed.). Prentice Hall. The FRC. (2011). Cutting clutter. Retrieved November 29, 2011, from Financial Regulating Council: http://www.frc.org.uk/about/cuttingclutter.cfm UK FRC. (2010). Louder than words. Retrieved November 29, 2011, from IAS Plus: http://www.iasplus.com/uk/0906louderthanwordssummary.pdf Walmart. (2010). 2010 Annual Report. Retrieved November 28, 2011, from Walmart: http://cdn.walmartstores.com/sites/AnnualReport/2010/PDF/WMT_2010AR_FINAL.pdf Read More