Let’s get digital when it comes to annual reports
The rest of the world is moving away from our long, indigestible documents towards easy-to-analyse digital statements.
I am going to write the phrase “annual report”, but I want you, dear reader, to bear with me for a few more paragraphs. Do not turn the page!
Imagine a world where annual reports easily provided the information a reader was looking for and were succinct and easy to navigate. It would be beyond expectations for them to be a scintillating read, but is it too much to hope for a better balance between completeness of information and 200 pages of gumph?
(Actually 202 pages was the 2021 average among the top 20 ASX-listed companies. The longest was more than 400 pages.)
It’s going to get worse
As reporting season gathers pace, regular feedback to chartered accountants is that annual financial reports are getting too long as businesses and standards grow more complex.
The fact — potentially horrifying for those who read these reports — is that this page creep will continue. Annual reports will get even longer and more complex when mandatory sustainability reporting comes into effect.
Now while accounting standard-setters tend to err on the side of too much rather than too little when it comes to disclosure, an enormous report made up of individually useful facts can for some investors be akin to full transparency… in hieroglyphics.
Time for change
There is a solution to this and it’s not necessarily the reduction of content, but the presentation of it. It’s time for Australia to take a leap into the 21st century and embrace digital reporting.
It means presenting the information in the internationally recognised digital reporting language, or taxonomy (no, not taxidermy — think consistent, machine-readable formatting). That way investors can consume the information how it suits their needs — easy to find, easy to use, and easy to compare and analyse key numbers. This is tailored, efficient, and once you get past the PDF mindset, not particularly hard.
It offers the added benefit of supporting integrated blockchain technology, meaning you have a set of digitised facts about companies and can present those in a way that can’t be tampered with.
Unmet demand
Some 86 per cent of retail investors rightly believe digital reporting would either improve or substantially improve their ability to access financial information.
Australia’s parliamentary joint committee inquiry into the regulation of audit recommended that digital reporting be made best practice here. And internationally, it has become commonplace in many major markets including the US, Europe, Japan, India and China.
For a few reasons though, the approach has so far been ignored by policymakers and companies, to the detriment of investors.
Companies are going with the old-school approach and on the regulatory side, the fact ASIC accepts digital reports but has no mandate to require them means there is little motivation to change or modernise. First movers will find limited value if digital is not adopted collectively across the market with a common data store, enabling consistency, and attracting service providers with the tools for investors to make the most of the data.
Competition is key
Both of those things need to change, not just because transparency is best practice, but because if the companies in other markets are doing it, it quickly becomes an issue of competition.
Some say it is just a matter of time before our resistance to improving annual reporting impacts the attractiveness of our capital markets, compared to others. It’s a sentiment I have to agree with, but thankfully, we have a solution in front of us.
The fundamental purpose of the annual report is to provide investors with a clear view from which they can make their decisions.
More than three-quarters of retail investors say they find financial reporting is not meeting this function, and that it is “somewhat [too] very difficult” to understand.
A wholehearted embrace of digital reporting will keep Australian companies competitive and will give investors the information they need to navigate the tricky global economy right now.
Simon Grant is group executive advocacy, professional standing and international development at CA ANZ.
