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The Annual Report free-for-all
09/06/2014
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ICSA’s recent consultation on Annual Report contents, a project set ICSA by BIS, gave us plenty of food for thought as we prepared our response to their consultation.

Preparing our response to the recent ICSA Consultation on the contents of the Annual Report reminded us of the growing value attached to Annual Reports in many quarters. Among the most persuasive evidence, and one of the most striking features, is the plethora of legislation and regulation that define, and opine on, what should be in an Annual Report. We listed an array of specific statutes or regulations pertaining to UK-listed companies originating from the EU Commission, the UK Government and the London Stock Exchange. These legislators and regulators don’t make it easy, either. There are internal inconsistencies as statute replaces, or builds on, past statute. There are more inconsistencies and contradictions between the different sources. Look, for example, at the UK Corporate Governance Code’s focus on materiality and de-cluttering and then at the Listing Rules’ apparent requirement for boilerplate governance disclosure. In addition there are influential opinions emanating from the GC100, the IIRC, assorted investor groups, NGOs, professional bodies, accounting firms, designers as well as owners of sustainability reporting frameworks. Add into this mix the preference of the majority of dual-listed companies, particularly those with a foreign issuer listing on the NYSE, to produce a dual-jurisdiction single Annual Report document that addresses also 20-F prospectus requirements and the potential for confusion reigns – and the reality is all too often confusion.

Looked at in the round, the degree of interest in the Annual Report is more than mere legislative and regulatory whim. It truly does reflect the growing recognition that strategically led and strategically managed companies are likely to outperform their sectors at least. The Annual Report is the only place to capture and express this longer-term thinking and its operational application to the business. The Annual Report becomes as much an evidence- and performance-based manifesto as it does a record of past financial achievement. This make ICSA’s task that much more of a challenge than it declares in its ‘Purpose of consultation and invitation to comment’ where it states: “ICSA has been requested by BIS to produce a simple contents list for company annual reports, to assist those preparing reports. This guidance is not intended to be prescriptive, nor is it intended to be a comprehensive list of all legal and regulatory requirements. It also excludes a list of contents for the financial statements.” We wondered how it would be possible for ICSA not to take account of all legal and regulatory requirements in the process of generating an indicative Annual Report contents list because every requirement is essential to compliance and so must be represented in the Contents list somewhere or another. We also wondered about the many lawyers who are among the host of Company Secretaries and will surely be ICSA members. Lawyers are literal in their interpretation of statute and regulation; the current melange of requirements and influences requires their legal dispositions to have at least a robust indicative Contents list that is at least reliable, even if is not intended to be prescriptive.

The complexity of the task and the shortcomings we perceived in the ICSA Consultation Draft have left us wondering how easy it will be to produce a final Contents list that satisfies all parties. It will surely be no easier than the FRC’s final publication of ‘Guidance on the Annual Report’, promised at the start of 2014 and only just published now in early June. The ICSA final output will surely be no less contentious.

You can also get our response to the ICSA Consultation here.