In KPMG’s recently released report, “Room for improvement: The KPMG Survey of Business Reporting,” the major complaint is that, while a majority of companies typically supplied data for the six key performance indicators (see below), it was mostly single-period quantitative data with a small amount of contextual information. Very few reports, for example, gave sufficient information to determine whether a business was growing.

Companies are often cited as being frustrated by investors’ focus on short-termism, says the report, but, if that is the extent of the information they receive, plus historical performance, they cannot analyse long-term prospects. While financial reporting plays a central role in this communication, it “cannot present a complete picture of business performance and prospects on its own.” Instead, investors need to assess what the report calls the “underlying health of the business, its potential for growth, and the long-term sustainability of its earnings.” If companies only provide current-year earnings, these are likely to be valued more highly than longer-term business prospects, simply because that is all that can be assessed. With this in mind, notes the report: “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.” Improving reporting is thus positive for both investors and businesses.

The report is based on an analysis of the content of 270 larger listed companies’ reports in 16 countries in 15 non-financial industry sectors, including analyses of full financial statements, directors’ remuneration reports, narrative reporting, and any other information in the primary reporting document.

A massive 42 percent of the average report is devoted to the financial statements, but only 14 percent addresses business strategy. In contrast, only 7 percent of reports provide information on order-book or sales run-rate. Annual reports are not short, so it is not that too little information is presented, rather that the quality of information is deficient. The average annual report is 204 pages long; 12 were longer than 350 pages. Average financial statement length also varies significantly between countries—from 60 pages in Russia to 140 pages in Italy.

Only 11 percent of reports come close to covering performance information on six key areas of business health. These are:


Research and Development


Operational efficiency



Each of these reporting areas are analysed in detail, and each has a reporting section based on industry sector. What this demonstrates is that there is a very wide variation in industry sector reporting with some industries reporting very well in some areas—telecommunications on customer retention and oil and gas on operating efficiency—and others very poorly.

Even the last area, product, an area that you might expect to see widely covered, was only covered properly by 58 percent of reports. Most reports, however, do not cover forward-looking aspects of performance at all, such as order book. Only 9 percent of reports provide a five-year track record of operational performance, though all provide some level of historical performance.

The disclosure of risks displays a considerable lack of focus. Companies in four countries—Germany, France, Canada, and the United States—reported an average of between 22 and 31 risks, compared to an average of 14. Publishing a long list of risks, however, does not indicate to readers which might actually be likely to affect a company’s business; it is simply a list of potential problems.

Customer and sales performance is also not properly disclosed, even less so for leading indicators of sales such as sales conversion, retention, and customer satisfaction. For example, only 6 percent of companies gave customer satisfaction scores. Even worse, only two-fifths of companies gave even current-year brand and market share data, and even fewer offer data on whether this has grown or is likely to grow.

“Over half of the companies identified knowledge and expertise as an important part of their business model,” says the report, “but only 22 percent of annual reports provided performance information related to non-brand intellectual capital that went beyond basic disclosures of expenditure.” This is largely attributed by the report to the fact that intellectual capital reporting is often limited to R&D, with other key areas of expertise and know-how not addressed at all.

While 71 percent of reports provided data on operational efficiency, only two-fifths gave enough information to see whether it was improving or said that it was in narrative form. In staff-based performance measures, barely a quarter provided even such basic measures as lost time and injury rates, never mind key staff retention rates and productivity and labor relations. Only 21 percent of reports provided information on new product launches. And, says the report, “despite the fact that 18 percent of companies identified product failure as a principal risk, only 5 percent of reports provided performance indicators for product quality or safety.”

Most companies—typically around three-quarters—reported strategy well, but on average, only five of the eight key areas were addressed. The key areas of strategy align closely with the key performance indicators used thus far: products, customers, staff, brand, expertise, operating base, supply relationships, and key processes. “The result,” says the report, “is that readers can be left with the impression that key aspects of the business are being taken for granted.” The survey shows that only 57 percent of reports specify the commercial objectives for the company, and only around a quarter address these in customer-focused terms.

While the analysis of what should be in annual reports is sometimes a little scant—KPMG is a consultancy and this is at least in part a bid for business—the problems with annual reports are very clearly expressed and give considerable pause for thought.