We’ve been seeing Strategic Report in Financial Statements for almost a year now. This was a new section of the accounts, shown before the Directors Report, giving details previously contained within the ‘Business Review’ section of the Directors Report. The idea behind them is to promote annual reports that are genuinely relevant to the company rather than just meeting the requirements of law through generic disclosure.
The role of the report is to provide useful information to shareholders on strategic management, the business environment in which the company operates and the business’s performance.
But how relevant is this to owner managed businesses. The report is supposed to be comprehensive as well as concise but many that I see give very little information of use or interest to the stakeholders. Two paragraphs are often seen as sufficient to cover the statutory requirements of this disclosure. There appears to be a general reluctance to provide any information over and above the absolute minimum required in order to comply with the rules. Commercial sensitivity is often quoted to justify the brevity of such reports.
I think many businesses and directors are missing an opportunity here. This is the one place in the report where the directors get to tell the story behind the results and to discuss plans and opportunities. Further, the process of identifying risks and actions to address those risks can be a useful exercise in itself and may reveal areas the directors should focus more attention on in the future.
Companies can communicate with employees, creditors and customers in this section of the accounts and a strong strategic report can give pointers regarding the quality of the company the directors running it. This is close to free advertising and is an opportunity that shouldn’t be missed.
- Have been with us since October 2013
- For medium sized and large companies.
- Is designed for shareholders but other users will hopefully find it .
- Encourage experimental and innovative narrative reporting.
- Promote cohesiveness through linkage.
- Provide context.
- Insight into business model and business strategy.
- Describe risks.
- Analyse past performance
- Should be comprehensive but concise.
- Forward looking
Date: 20th October, 2014
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