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RAPPORT

Room for improvement

The KPMG Survey of Business Reporting, second edition

In the second edition of the report, we present the main findings from a global analysis of the content of 270 larger listed companies’ reports, in an effort to highlight weaknesses and identify good practices in the presentation of corporate information. Our aim is to contribute to the debate among companies, investors, regulators, standard setters, auditors and others about what is right and wrong with corporate reporting around the world today, and help chart a course toward improved communication between companies and their shareholders. Capital markets rely on relevant information presented clearly and accurately, so the clarity and usefulness of corporate reports have an important role in ensuring they function efficiently and help support a healthy economy.

Our view is that financial reporting plays a central role in this communication, but it cannot present a complete picture of business performance and prospects on its own. Investors must assess the underlying health of the business, its potential for growth, and the long-term sustainability of its earnings. Annual reports provide much less information to support these assessments, although objective information could be provided to give this broader insight.

This imbalance of information can lead to short-termism. Current year earnings may be valued more highly than longerterm business prospects, simply because the value created is more visible. As a result, businesses that are investing in their long-term prospects may find it difficult to compete for capital with those that are instead prioritizing short-term earnings.

Addressing this will require something greater than merely tweaking financial reporting standards; indeed, this could undermine their conceptual integrity. Instead, the answer lies in the presentation of a broader range of business-focused information that addresses the operational performance of the company, allowing investors to form their own assessments of business prospects. The annual report is the right platform for this discussion, providing the backstop to other, more timely, performance communications.

We hope you find our analysis to be a useful contribution to this debate.

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