More – and more structured – narrative reporting on the cards in UK

Everybody knows that financial statements are snapshots of a time gone by. Using them to navigate is like driving forward while staring in the rear-view mirror. The "solution" is more and better non-financial reporting, where management tells us what they are doing about all those things that are difficult to quantify and then equate to cash. When it came to power a year ago, the Conservative-Liberal Democrat coalition in the UK made early rumblings about revisiting the issue that its Labour predecessor had discarded at the last minute when company law was reformed in 2006: the operating and financial review. After a consultation paper last October and a summary of responses a few months later, things have gone quiet at the Department for Business, Innovation and Skills. But a formal response from government is due in September, and a minister has offered a preview of what it contains. Edward Davey, the Conservative MP looking after the matter at BIS, has suggested that narrative reporting should be split into two sections. Speaking at the ICSA-Hermes Transparency in Governance Awards, he said companies would need to produce a Strategic Report and an Annual Directors' Statement.

"The Strategic Report will, as its name implies, be strategic," he said. "It will be a short document, aimed at shareholders, in which the business tells its story. It will be the one stop shop for anyone wanting to know the key facts about a company. It should be a truly integrated report that shows how the company's financial results are linked to its strategy, business model and long-term risks and opportunities - including environmental and social issues." As that explanation expands, so too does the length of the document.

The second part would contain the detailed disclosures that companies are either required to make by law or that they provide voluntarily, he said, disclosures "that are important to somebody, but not to everybody".

Source document: A summary of his remarks in available in Company Secretary magazine online, the journal of the Institute of Chartered Secretaries and Administrators.