Lack of clarity 'harming annual reports'

Attempting to serve the needs of too many shareholders has made annual reports too complex and difficult, obfuscating their meaning rather than clarifying it, an industry expert has claimed.

Speaking at an Institute of Chartered Accountants in England and Wales (ICAEW) debate on audit quality this week, Robert Talbut, chief investment officer at Royal London Asset Management, warned something needs to change if reports are to become more accessible.

He suggested it is currently unclear which sets of users the data is aimed at, perhaps implying that splitting reports up differently could offer a solution, reports Accountancy Age.

"We have to own up and admit that the primary users of accounts are the longer-term providers of capital...we need accounts that serve them," he argued.

There has been a great deal of debate over annual reporting in recent years, with various suggestions put forward as to how firms and accountants can improve this practice.

Businesses have been warned against couching their data in language too esoteric or obscure to understand, with regulators keen to ensure information is as accessible as possible.

However, attempting to serve too many masters may be having a negative affect on the quality of reports, as Mr Talbut suggested.

The expert, who also chairs the Association of British Insurers' investment committee, suggested too much focus on compliance issues has led to reports becoming "marketing documents" with not enough financial nous.

"We need to rein in management's propensity for optimism in accounts...and make sure the back-end genuinely portrays a realistic picture of what is going on in the business," he added.

He also called on the IASB to reinforce the standard and concept of prudence "at the highest level".

These comments follow a report from PwC suggesting major changes are afoot for the annual report, with the Financial Reporting Council and the government keen to ensure businesses toe the line in a number of areas.

Transparency and reliability are to be the watchwords over the coming years, PwC claimed.