CFOs Serving Two Masters in Annual Narratives

September 27, 2010 ( – When 91% of the U.S. CFOs in a recent survey prepare their annual report narratives, they have shareholders in mind as an important audience, but 72% also picture regulators when they take pen to paper.

That was a key conclusion of a survey of 230 chief financial officers in listed companies across nine countries sponsored by ACCA (the Association of Chartered Certified Accountants) and Deloitte. Eighty-eight percent of U.S. respondents consider legal and regulatory requirements and  91% ponder shareholders’ requirements as important drivers for annual report narrative disclosures.

A majority of U.S. respondents include an explanation of the financial results and financial position (100%), most important risks and their management (97%), and a description of the business model (88%) in their annual reports. While only 34% of respondents believe that shareholders consider corporate governance policies and procedures to be disclosures of high importance, 72% actually include this disclosure, according to a news release about the survey.

Since the financial crisis, most respondents claim that the disclosure of important risks and their management (81%) and explanations of financial results and positions (84%) have become of  greater interest for shareholders.

Meanwhile, globally, respondents perceived the five most important disclosures for shareholders to be: explanation of financial results and financial position (identified as of high importance by 87%); identifying the most important risks and their management (67%); an outline of future plans and prospects (64%); a description of the business model (60%); and a description of KPIs (58%).

The demands from regulators differ from those from shareholders. All nine countries covered in the report demand remuneration reports (seen as of high importance to shareholders by only 49% of preparers) and a statement of compliance with corporate governance codes (46%).

“Companies are trying to serve two masters at the same time,” said Isobel Sharp, Deloitte U.K. Audit partner, in the news release: “They want to inform shareholders of what is happening in the business. They need to satisfy regulators by meeting all the disclosure rules. To achieve succinctly and simultaneously both outcomes in the same report is a major challenge.”

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