The recent letter from the Financial Reporting Council to audit committee chairs and finance directors contains a shopping list of improvements it expects companies to make to their annual reports. The main theme, however, is clarity. This is the message it has heard from investors on strategic reports (“user friendly and more clear”), business model reports (“clarity of the explanation of how the company makes money and what differentiates it from its peers”), and all sorts of accounting policies (“more detailed disclosure of how dividend policies operate in practice”).
A strategic report, it says, can be “comprehensive if it complies with the law and explains all material matters in sufficient detail to be useful and understandable.” But it says that, in particular, there can be improvements in the reports for smaller companies, especially the discussion of their financial position and cash flows, as well as performance. In other words, what they might expect as future performance.
