July 31, 2014 Transparent disclosures
One of the clear messages to emerge from the regulatory bodies, post recession, is the need for transparent and consistent reporting to aid investor decisions. The days of saying as little as possible wrapped up in verbiage have gone. Today the watchword is investor protection and the golden rule is to provide clear and concise reporting which paints a true picture not only of the current state of the organisation but gives a fair indication of future prospects.
To this end, two messages have recently come out from the regulatory authorities. The first from the Financial Conduct Authority (FCA) relates to the removal of the requirement for issuers of shares admitted to trading on a regulated market to publish interim management statements pursuant to Transparency Directive Amending Directive (2013/50/EC). The directive is due to come into force in November 2015 but the Treasury have asked the FCA to consult on an early implementation of the directive.
Whilst at first glance it would seem that the removal of the requirement to provide interim reports is not in the interests of consumer protection, it is considered that these statements did in fact add little to consumer safety whilst placing a disproportionate burden on companies. Accordingly the FCA considers that consumer protection would be best served by “ensuring that an appropriate level of information continues to be made available to investors in listed securities in the annual financial report.”
Elsewhere, the Financial Reporting Council (FRC) has published a Lab report on Accounting Policies and Integration of Related Financial Information. The report is designed to provide a valuable insight for companies on what investors want from accounting policy disclosures. Covering investor comments, aspects of regulation and best practice examples, the report makes valuable reading for all those who are tasked with compiling annual reports.
Key findings from the report include the fact that “investors want improved disclosure that avoids boilerplate text by being specific to the company and providing sufficient detail to understand how the company accounts for its transactions.” This includes a better estimate of the effect which judgement and estimates may have on reported results. Investors are looking for reports to be presented in plain language but with a choice of terminology which respects knowledgeable readers as well as being understandable by non-specialists. Overall the FRC considers that the findings support the move towards clear and concise reporting.