INTEGRATED NARRATIVE DISCLOSURE - Essay Example

This inevitably gives rise to a better understanding to investors and improves relationships between stakeholders. In addition, the underlying procedure needed to generate this information can also improve governance and enhance board effectiveness. A more important reason why firms embrace narrative reporting is that it is not a burden, rather an opportunity, which when used appropriately can act as a basis for developing real competitive advantage. According to Brennan, Pierce & Encarna, (2000), narrative disclosure is essential in effective communication in organizational audience, inclusive of stakeholders, shareholders, and the entire society.

For instance, corporate narrative records are used to give an account of managerial decisions and actions, to notify shareholders on strategies, to institute organizational reputation and identity, to influence organizational audiences concerning the legality of a firm, to persuade shareholders on the benefits of a takeover or merger. According to the Financial Reporting Council, (FRC), the most vital disclosures for shareholders are: sporting out the most critical risks and how to manage them; an explanation of the monetary position and financial results; a blueprint of future prospects and plans; and a description of the business model.

Narrative reporting plays all the right notes, though it plays all of them at the same time. From the time of the financial crisis, as anticipations have been determined by yearly reports as descriptors of models in business, opinions have come up about its potential to communicate business models. Growing regulatory complexity, uncertainty as to what audience narrative reports serve and extreme detail have all merged to create a culture that produces a deafening dissonance of “noise” on any individual attempting to read an annual report.

Data overload is adversely hampering the significance of narrative reporting, a case that is quite frankly, rather annoying. The “front” part of a yearly report; any financial statement that is not audited has an essential role to play in annual reports. Dissimilar from the numbers, narrative reports gives a company the opportunity to present its story in a unique way by providing a sense of a firm in a manner that cannot be achieved when using a balance sheet. Prose can disclose a company’s operating environment, strategic direction, its values, and governance structure (Sydserff & Weetman (1999), While it is not a guarantee for a narrative report to be used by the senior most investors who may probably interrogate a company, this report is extremely precious to the entire host of other stakeholders, regardless of whether they are potential shareholders, potential customers, or employees.

Within this report, there should be some data that will have an impact on investment decisions. However, whilst narrative reports are viewed as a shareholder tool, it is the regulators’ needs that seem to be taking priority in their preparation. The critical challenge or problem in report preparation is the number of necessities placed on preparers, as well as the time and cost involved in developing the report. A lot of effort and time can be spent working on report sections to achieve regulatory needs that are of little significance to any person, either by giving too many details or offering nothing but neutral, regulatory-approved company-talk.

The nature of some