It sometimes seems like preparers of accounts are from Mars and users are from Venus. Do these two groups have conflicting desires, or is it mostly a communication problem?
AB spoke to Hilary Eastman, a consultant who has spent her career helping preparers communicate well, and Peter Reilly, a former sell-side investor who has spent his career trying to understand what they’re saying. Their discussion highlights far more commonalities than you might imagine.
AB: Who do you believe are annual reports for?
Hilary Eastman: They’re primarily for providers of capital and potential providers of capital – investors and creditors. They have a special relationship with companies. This is why the annual report exists – to give investors access to information they need and may not otherwise get.
I want a comprehensive narrative that explains what a company is all about
Peter Reilly: I take a broader view. I think reports should be accessible to everyone: investors, journalists, suppliers, employees, regulators and NGOs. A good annual report should communicate clearly enough that different readers can find what matters to them and nobody feels they are being excluded.
What does ‘good’ reporting look like to you?
PR: I want a comprehensive narrative that explains what a company is all about. I want a clear strategic review from the CEO and a thorough financial review from the CFO. I want detailed operational information to explain what happened during the year. They should fit together and tell one story about the business yesterday, today and tomorrow.
What investors really want is something better, clearer and more decision useful
HE: Consistency and coherence across a report are important. You should be able to tell that each section relates to the same company and supports the same overall narrative.
Is the requirement in IFRS 18 for companies to disclose management performance measures (MPMs) a positive step?
PR: Potentially, yes. MPMs – or KPIs, as I would call them – are a key part of almost every company’s story. But it’s like the Wild West today; companies can define MPMs or KPIs however they want. They don’t have to explain how they’re calculated. They’re not always reconciled back to the statutory accounts. Done well, IFRS 18 will help users understand how these numbers were derived. We can compare them across companies with more confidence. It’s also a great opportunity for companies to stand back and ask: what are the KPIs that really matter?
More broadly, the quality of reporting is still variable. Annual reports keep getting longer, but they’re not getting better.
HE: It’s the challenge I hear all the time. New disclosures can, of course, add to length, but they don’t need to. Companies are often afraid to take anything out. If companies used each new reporting requirement to step back to reflect on what it means for the whole document, reports could become shorter and stronger. Companies always say that investors want more, but what investors really want is something better, clearer and more decision useful.
PR: Shorter is almost always better. The higher quality reports are the more concise ones because it shows that someone has thought hard about what matters.
There’s a bigger problem here, which is that investors are poor at engaging with companies, standard setters and regulators. When a new standard comes out and they don’t like it, they complain about it. By then it’s too late.
What are your views on sustainability reporting and connectivity?
HE: Many people still see sustainability as a separate thing and not as part of the business. That comes through in reporting; different teams write different sections, all with different styles, priorities and language. It’s then very hard for the outside reader to see what’s really going on within the business.
Better reporting comes from putting yourself in the other person’s shoes
PR: I agree that the quality of sustainability reporting is generally disappointing. It often feels like it’s been written by a separate team and bolted on at the last moment.
What might AI mean for corporate reporting?
HE: I think it could be transformative – for investors and for the profession. For investors, AI can save a lot of time. An AI model can go through decades of annual reports and other information in a matter of hours, when it used to take an analyst days or weeks. It can see patterns over time. It can see when targets change, when commitments are made and then dropped, and where there are gaps or conflicting information. It can also analyse information that was previously inaccessible. The competition for capital therefore intensifies because investors can look at more companies in less time.
For companies, AI can help streamline the reporting process, taking the data gathered and building the story around it. It can edit drafts of the report. It can analyse how the report might be interpreted or understood by an investor’s AI model.
But there are risks in terms of data security and quality, and it’s not a shortcut. It’s always only a starting point; every output needs to be checked. Directors are still responsible for what’s in their annual report.
Would you conclude, therefore, that Mars and Venus are somewhat aligned?
HE: Yes. The bigger issue is that preparers and users often speak different languages. Companies don’t always stop to think about why they’re reporting, whom they’re reporting to or how the information will be read or received. They also don’t always appreciate the amount of information that investors, analysts and other stakeholders need to digest.
The competition for attention is high. Companies that recognise this can take steps to make sure that their reports are well articulated, easy to read, easy to navigate and get the information across as simply as possible.
PR: I agree. I don’t think there is a conflict. Better reporting comes from putting yourself in the other person’s shoes. If you can do that, you’ll end up with a much better-quality annual report.
More information
Find more articles from Hilary Eastman: Tips for better reporting, AI forces reporting rethink and AI’s corporate reporting potential.
See Peter Reilly’s recent opinion columns: Accounting catches up with business reality, Punish bosses not auditors and Pay, power and toxic management
