The Accounting Standards Board (ASB) has published its first review of narrative reporting by UK listed companies.
Aimed at encouraging improvement in the financial reporting arena, the report found that most firms were good at describing their current performance but not so good at providing forward-looking information and identifying their principal risks.
The review had two objectives: firstly, to assess companies' best practice according to the ASB's Reporting Statement on the Operating and Financial Review; and secondly, to assess how UK firms are managing to provide a business review in their 2006 annual report, as required under the EU Accounts Modernisation Directive.
Firms have become better at reporting environmental, employee and social issues, the report suggests. However, there is room for improvement in other areas too, including providing better descriptions of resources available to the entity such as brand strength and reputation.
Key performance indicators
It was also found that more could be done to identify key performance indicators, both financial and non-financial.
Companies in the review sample included BAA, British Airways, Land Securities and Marks and Spencer.
ASB chairman Ian Mackintosh commented: "Narrative reporting is an increasingly important feature of corporate reports, providing an opportunity for directors to set out a clear and balanced analysis of the strategic position and direction of their business.
"The ASB's work seeks to support this trend."
Charles Tilley, chief executive of the Chartered Institute of Management Accountants (CIMA), welcomed the review's publication.
"Companies seeking to improve their narrative reporting practices will find this publication, with its examples and suggested actions, to be both informative and practical."
© Adfero Ltd
