Never before have reporting entities been subject to such intense regulatory and public scrutiny.
As the markets come to grips with the global financial crisis and corporate failings of the last two decades, regulators have responded with more rigorous reporting regimes. Under such conditions, it’s not uncommon for listed companies and other reporting entities to ensure they comply by providing the bare minimum.
But what if your financial report could do more than just comply? What if it could add value to your company?
Given the mandatory nature of interim and annual financial reporting, the question: “Can it add value?” may seem irrelevant.
However, regardless of or perhaps due to its statutory nature, your company’s financial report is the principal method of communicating with shareholders and should be neglected at your peril.
CFOs can ensure their Boards are effectively communicating with shareholders by recommending that they treat their interim and annual financial reports with the same attention as a prospectus. Used to convince a sceptical public that they can make a return on investing in a company, the prospectus has always been treated as a vital communication tool and, as such, commands a great deal of time and attention.
As a vehicle for communicating key financial information to current shareholders and interested parties, financial reporting should be treated no differently. The activities of the entity should be communicated in a user-friendly manner with clear diagrams and tables which illustrate and explain the financial position and performance for the period being reported.
The interim report, in particular, provides an opportunity to engage with stakeholders, to report upon progress of key objectives of the entity and to affirm the direction of the business. It also provides an opportunity to address contentious issues of performance. If objectives are not being met, the report should explain the delay and the plan to achieve successful outcomes.
While certain aspects of the financial report are mandatory, the best quality reports also provide non-financial metrics and narrative. These include measurements such as market share, workplace safety record, successful applications for patents and trademarks, progress on major projects, customer satisfaction or even a report on sustainability and impacts on the environment.
An effective financial report will tell the complete story of your company; the financials, management, products, operations and future plans.
Excellence in external financial reporting is a key aim of the Australasian Reporting Awards which exists to continually improve the standards of financial reporting as a vital element in the governance process. We recommend that you consider some of the winners of these annual awards, which include Australian and New Zealand corporate, government and not-for-profit entities.
We also suggest creating a project team charged with preparing the interim and annual financial reports. The team may start with some relatively easy goals such as improving the quality of reporting and the clarity and the usefulness of the reports.
Eventually, this may lead to creating an integrated annual financial report and entry in the annual Australasian Reporting Awards. It may also result in your organisation being considered a leader in governance, transparency and success in your industry.
The CFO is the ideal person to lead the project team which would ideally include the Company Secretary, the External Affairs/Public Relations Manager, the COO or a representative from Operations and ideally a Board Member such as Chairman of the Audit Committee.
If you’re proud of your organisation, want to attract a talented workforce and quality customers and suppliers, and be considered an industry leader, adding value to your external financial report is a good place to start. This requires leadership and ownership, starting with the CFO.