Last updated: 07.20.2023
Reporting Guidance

This section provides guidance on the preparation of the information that will be disclosed as part of the annual report. It includes guidance on the materiality of information reported as well as its quality—its reliability, completeness, conciseness, consistency, and comparability. This section also includes guidance on the scope of the information reported, the dual mandatory and voluntary nature of reporting, and special considerations for nonlisted companies.

Materiality

The concept of materiality serves as a test of what should be reported by bringing into balance different objectives of corporate reporting:

  • Making sure investors have sufficient information to make informed decisions;
  • Ensuring the cost-benefit of disclosure for companies and society; 
  • Avoiding unnecessary information that can obscure a clear view of company performance.

Most countries use materiality as the test of what should be reported. National regulations typically focus on current shareholders or investors and their ability to understand the current and future performance of the company; if the information could affect the company’s share price or investor decisions to buy or sell its securities, it is usually considered material. 

The IASB’s International Financial Reporting Standards define material information as follows: “Information is material if omitting it or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report.”

What specifically should be disclosed? In some cases, regulation provides only a general requirement to disclose “material” information on a particular topic, giving companies substantial discretion to determine what is material. In other cases, the content of a report will be well defined by regulation or good practice. For instance, company discretion is more limited in the areas of governance and the board, related-party transactions, and ownership. National regulations and standards tend to give more specific guidance on what to disclose in these areas. 

However, materiality determination is key in the areas of strategy and performance, risk, and sustainability. Each of those is very specific to the company, and what companies present may differ significantly—in substance and appearance. (For more information on how materiality applies to sustainability issues, see Management of Material Sustainability Issues)

The concept of materiality is useful in determining the amount of detail to disclose for a specific item. For example, a report may contain qualifications for each board member; however, only key qualifications—such as, in some cases, a board member’s education—are likely to be material.

Materiality sometimes requires a forward-looking approach, to provide an understanding of the future prospects of the company. For material risks, a typical approach is to plot—on a “heat map”—the likelihood of impact versus the magnitude of impact. For sustainability risks and impacts, a materiality map or assessment can help companies determine what is important for the core operations of the company versus what is important for its stakeholders.

Information Quality

Good reporting requires a careful balance between competing priorities:

  • A complete presentation of all material information;
  • Ensuring that the report is sufficiently concise to preserve focus and readability;
  • Tailoring the report to the company to give the reader a strong understanding of the company and the environment it operates in;
  • Keeping the presentation comparable—to the company’s reporting in previous periods and to the reporting of other companies in a similar industry—to make it easy for investors and others to use.

Clearly, preparing the annual report involves tradeoffs. Attempting to be complete and comprehensive can lead to overly long reports that can easily become disjointed. On the other hand, too much emphasis on conciseness can produce some very readable reports, but they may omit key information.

Similarly, reports should be specific about the companies that issue them. A reader should understand the performance, main products, markets, risks, and future plans of this particular company—not just concerns that could be applied to any company. Regulators increasingly encourage companies to take some initiative in tailoring reports to best communicate their story with investors and others. But investors frequently express frustration that information is not comparable from one report to the next—that it is too hard to find particular items in one report and compare them to the reports of other companies. This is an especially acute concern for institutional investors analyzing and investing in large numbers of companies.

Scope of Disclosure

The report should cover the activities and results of the company itself and any entity in which the company holds a controlling interest (generally defined as 50 percent ownership or more). Financial reporting is typically consolidated among the reporting entity and its controlled entities. Measures of consolidated financial and operational performance include the totality of the controlled entity, regardless of the size of the minority interest, and the value of the minority interest is accounted for separately in the income statement and balance sheet. 

Information on affiliated but unconsolidated entities should be included to the extent that it is necessary to explain the strategy, governance, and performance of the company and its consolidated entities. However, unconsolidated entities should not be factored into the calculation of the consolidated financial, operational, and sustainability performance. 

For financial reporting purposes, minority interests in unconsolidated entities are accounted for using the equity method (profits in proportion of the minority interest) or the fair market value of the investment.

Disclosure Requirements
Disclosure requirements are different for listed and nonlisted companies. Depending on the jurisdiction, the reporting elements and suggested disclosure can be legally mandated, voluntary, or not addressed.

Listed Companies

For companies that issue securities to the public, it is important to be familiar with the various requirements for the annual report and other disclosure, including securities law, corporate law, stock exchange listing requirements, and corporate governance codes. Also, regulators or exchanges will often give supplemental guidance on how to prepare annual reports,including guidance on sustainability and integrated reporting.

Specific challenges can arise from mixing mandatory and voluntary information, and from mixing audited financial information (which is prepared in accordance with generally accepted accounting standards) and forward-looking information (which is not so prepared). Therefore, regulations often impose specific requirements for the disclosure of voluntary and forward-looking information in financial statements or investor reports.

Nonlisted Companies

In some countries, such as India and the United Kingdom, larger nonlisted companies have a range of reporting requirements. Even when requirements are minimal, public reporting can still be important for private companies. Accessing new funds, engaging new stakeholders, and meeting the demands of current stakeholders as the company grows and becomes more complex will still require telling the company’s story. Nonlisted companies can more easily tailor their reporting to particular investors and stakeholders.
 

Who Should Be Involved in Preparing the Annual Report?

The process of preparing and filing an integrated annual report should be directed by the company management (most appropriately the corporate secretary) and overseen by the board of directors and its different committees (audit, governance, sustainability).

Ultimately, the company management (usually the top executives such as the CEO and CFO) and the board are responsible for the timely issuance and accuracy of mandatory and voluntary reports.

Preparation of the report requires the involvement of a multidisciplinary team from a number of departments in the company, including the following:

  • Strategy
  • Functional areas (sales, marketing, manufacturing)
  • Operations 
  • Sustainability or environmental, health, and safety (EH&S)
  • Human resources
  • Risk management, internal control, and audit 
  • Legal and compliance 
  • Finance and accounting 
  • Investor relations
  • Information technology

External auditors carry out the independent audit of financial statements and assurance of selected sustainability information. External auditors report to the board of directors (usually the audit committee). 

Internal Planning for Annual Report Preparation

Learn More STRUCTURE AND FUNCTIONING OF THE BOARD

Reporting Formats

A digital copy of the annual report is often the main channel of access to the report for investors and other stakeholders. Although some companies create a Web-based version of the report, it is recommended that the annual report be made available as a PDF (portable document format), which combines many of the advantages of a printed physical copy of the report with the flexibility of a digital format.

The Financial Reporting Council (FRC) Lab Project notes that PDFs of annual reports should have the following attributes, which are valued by investors (FRC 2015):

  • Has a clear boundary: Allows investors to have a clear understanding of the document, its scope and content.
  • Is assured: To investors, the PDF benefits from the same level of assurance as the hard-copy annual report.
  • Covers a defined period: Represents a report at a point in time that does not change, as opposed to webpages, which can be subject to update.
  • Can be downloaded: Provides comfort that the investor’s copy will not be subject to manipulation or removal.
  • Is searchable: Gives investors more confidence that the results are relevant, as the search operates within the boundary of the single, clearly purposed document. This also allows them to quickly pinpoint areas of interest within that report.
  • Is (relatively) timely: The PDF is available online prior to the hard copy arriving in the post, and it can be accessed by investors as soon as it is released.
  • Is portable: The PDF can easily be stored and accessed across most devices.
  • Is ubiquitous: Widespread adoption of the PDF format by companies means that investors can access and analyze files across companies and years.

The FRC recommends keeping the PDF simple—avoiding e-books and interactive PDFs, which are not valued by investors. It also recommends providing archives of the company’s past annual reports as well as other supporting information—making available 5–10 years of historical records—on the company website (FRC 2015).

XBRL

XBRL can make digital reporting easier for issuers and data aggregation and analytics easier for investors.

The Sustainability Accounting Standards Board have been proactive in developing an XBRL version of the SASB Standards taxonomy. 

EFRAG considers developing an XBRL taxonomy for the first set of European Sustainability Reporting Standards (ESRSs), being introduced under the Corporate Sustainability Reporting Directive (CSRD).

The XBRL taxonomy will digitise the disclosure requirements detailed in the ESRSs and is therefore fundamental to the EU’s goal of ensuring that the CSRD is ‘digital first,’ with XBRL reporting built in from the outset, and allowing the expanded use of the European Single Electronic Format (ESEF) in the sustainability sphere.

The European Single Electronic Format (ESEF/iXBRL) is the electronic reporting format in which issuers whose securities are admitted to trading on EU regulated markets must prepare their annual financial reports to facilitate accessibility, analysis and comparability of annual financial reports. ESMA develops the regulatory technical standards (RTS) which specify this electronic reporting format as well as guidance and implementing tools.

The International Sustainability Standards Boards (ISSB) considers developing IFRS Sustainability Disclosures taxonomy for the IFRS Sustainability Disclosure Standards. 

Technology and Reporting

Technology plays an increasingly important role in the development of corporate reporting. Digital technologies in particular, such as artificial intelligence and blockchain, are enablers as well as drivers of this change. New technologies have already disrupted incumbent and existing business models, and all companies are increasingly using new technologies to facilitate transactions, exchange information, or connect people.

Undoubtedly, the same technologies will also significantly affect the way corporate reports are prepared and delivered to a company’s stakeholders. For example, regulators are looking at the possible role of blockchain-based solutions in streamlining the reporting process—that is, the production, distribution, and consumption of financial and other corporate information.

Data analytics and artificial intelligence are further examples of how digital technologies are disrupting corporate reporting. These technologies can play a crucial role in improving a company’s capacity to collect and curate information, as well as their communication of that information.

This will also allow for “continuous reporting,” which instead of being implemented on an “annual” or other fixed-term basis, will be continuously updated and disseminated online. Continuous reporting will create a more engaged and responsive dialogue among the company, investors, and other stakeholders.

Companies are encouraged to innovate in their use of technology to support corporate reporting, both regulated and voluntary reporting (Kriz and Blomme 2016).

Disseminating the Annual Report

Annual reports and related sources of information have different audiences and serve different purposes, including meeting disclosure requirements, strategic communication about the company, and engagement with smaller shareholders and stakeholders.

Disclosure Requirements

Market authorities or stock exchanges typically impose disclosure and transparency requirements on larger, publicly listed companies, including making the annual report publicly available. For publicly listed companies, disclosure requirements are very strict, based on the need to disclose all material information fairly and equally to all shareholders, to avoid information asymmetry and insider information. Public companies are also required to disclose material information in a timely fashion, which entails the publication of quarterly unaudited financial statements and periodic or current reports for material events that occur between the reporting cycles.

For this reason, annual reports, as well as quarterly and periodic reports, must typically be filed with the relevant market authorities and exchanges. In addition, these reports should be made available via the company’s main communication channels, including the corporate website.

To make financial information easily accessible and to improve market efficiency, market authorities may also require or encourage the disclosure of financial information in electronic format, such as XBRL (a standardized, machine-readable format for tagging business and financial information).

Strategic Communication

Beyond meeting disclosure requirements, annual reports are a great tool for promoting the company to stakeholders, including investors, employees, business partners, customers, and the community, as well as for sharing the company’s vision, strategy, performance, and impact.

Companies should maximize the dissemination of their annual report and related information beyond the required filings. For example, public companies typically hold investor calls at the time of release of annual and quarterly financial reports, where the top management presents key highlights of the reports. Similarly, the information in annual reports can be used in investor roadshows to support the company’s access to new capital.

Another important channel for communicating strategic, governance, and performance information is the CEO letter that introduces the annual report. For example the Blackrock annual letter to CEOs is a major event. 

Usage of visuals, interactive tools for the entire or parts of the annual report and ongoing disclosure beyond the annual report help companies engage and build trust with investors and other stakeholders. 

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