Computation work

Besides, segmental reporting should be emphasised as there is only a little segmental information disclosed in the general practice today. Segmental reporting should include the detailed business segment as well as the geographical segment information. However, as mentioned, segmental reporting practice nowadays is not given a great attention as many people argue that the disclosure of segmental information is a competitive disadvantage to the company itself. This is because segmental reporting highlights particularly poor or good performance.

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The competitors will then analyse the corporate strategies of the successful companies, thus duplicate the style of strategies to improve their companies. In particular, Deloitte & Touche are concerned that foreign competitors might gain a competitive advantage in terms of information disclosure. If this is a real corporate concern, persuading companies to reveal sensitive information such as details on new product development may prove an obscure task. However, if the company is strong and stabile enough, detailed disclosure will never be the problem to the company itself.

This is proven by the segmental information presented by Coca-Cola Company, which it is still a top market leader in the world. Many users of financial reports will be interested in the performance and prospects of one particular part if the enterprise rather than the enterprise as a whole. For instance, employees’ security of employment, pay and conditions will generally be more directly dependent upon the performance if the specific division they work for than the performance of the group as a whole.

Similarly, governments will be primarily interested in the performance of the part of the group that is located in their countries. Customers, suppliers and creditors will instead be most interested in the subsidiary that they have contracted with. Anyway, a segmental reporting is important to enhance the investor confidence as through the segmental analysis, financial users can have better assess to the company’s risks and prospect. Another serious weakness of the annual report, which I personally think that, would be the ambiguity of the auditors’ report.

As mentioned earlier, the function of this report is to view the opinion of the external auditors as to whether the company is disclosing the true and fair view of financial information. External auditors, act of behalf of the owners of the business (shareholders, not the directors) and report in the financial statement prepared by management for the benefit of shareholders. Therefore, the crux of whether the company is reporting the truth and fairness lie on the duty of the auditors. Frankly speaking, how many people can really understand the intention/purpose of the report wants to reach?

Many people argue that the audit report is the most repetitive report and contains hardly understandable terms and jargon. Therefore, auditors’ report should nevertheless simplify and summarise to the lowest extent of reporting as it is believed that many users are definitely ignore this part. But more importantly, auditors’ report should straight to the intended point without explaining a long story of the procedures. It must bear in mind that auditors’ report should make it not only influential but also interesting so that the shareholders will pay a significant attention to this part.

Firms should adopt ‘value reporting’, i. e. companies should voluntarily provide customised reports containing a variety of current and future additional information. Such information would comprise segmental data, research and development investment expenditure, new product development data and capital expenditure and etc. PwC argues that potential benefits from this additional voluntary disclosure are increased investor confidence in management, lower cost of capital and higher share price. As a conclusion, there is still a wide room for annual reporting to improve. However, some countries such as UK firms already face excessive disclosure in their annual report.

If there were additional information needed to be included in an annual report, would the users really read the thick book thoroughly? The particular value of the report is the up-to-date assessment of the key information needs of both the institutional investors and financial analysts. The desire for additional information may nevertheless increase the knowledge of the financial users while enhance their confidence to make a more accurate economic decision; the reluctance to disclose this may be associated more with the fear of competitors gaining competitive advantage than with ignorance.

But more importantly, if the company were stable enough in the sense of position and performance, what extent of fear should they worry about? Evidence has shown that most of the giant companies will definitely produce a detailed annual report rather than the few pages length of annual report. Anyway, some information published in the annual report must be limited in detail, to prevent competitors and possible take-over bidders from gaining useful but damaging knowledge of the organisation.

But we must bear in mind that the annual report must not only remain its influential after disclosing the information, it must be interesting as well. Executive Summary Executive summary is a statement that summarise the whole information of the annual report in order to give the most transparent and fastest effect of understandability to the shareholders, especially those without relevant accounting knowledge, even those with accounting knowledge base shareholders might sometimes find the information hardly to understand.

This happened whenever the company deals with complex annual report, which includes some additional and rare report, such as social report and etc. So, it is a need for a reporter to communicate most effectively with its stakeholders and for the users to assess the performance of an organisation both over time and in comparison with other organisations. Therefore, executive summary plays a vital role to convert and explain the information clearly to the shareholders with the most simplest and easiest way of understanding the complexity of an annual report.

However, up until 1990s, companies are required to send all of these shareholders full, detailed annual report. Yet, executive summary is still not a legal requirement and companies will nevertheless ignore it. Companies believed that a substantial number of these reports are simply thrown away unopened. They also believed that those who opened the report and tries to read it rarely got beyond the directors’ report and chairman’s statement.

Sending annual report to such people are, on the face of it, a complete waste of time and money. The TSB group (with over two million shareholders) got together with others with an interest in corporate reporting and lobbied the government for a change in the rules. Two arguments were put forward. First, the annual report was manifestly failing to achieve its objective for many private shareholders; it was failing to communicate financial position and performance, or anything else for that matter. Second, it cost too much to send out.

Therefore, in the early 2000s, the international corporate reporting is much more concerning to include an executive summary which it functions just as almost similar to a summary financial statements, where if the company were not to distribute the annual reports to the shareholders, executive summary is capable to tell every single important information in the fastest and most effective way to the knowledge of the shareholders. Research has shown that over 95% of the shareholders of the privatised companies (and an increasing number of other companies) now receive summary financial statement, rather than the full annual report.

An executive summary as mentioned, it should function like a summary financial statement, where it is ideal to be located in the first part of the full annual report and reported consistency with the full annual report and with compliance to Regulations. The length of an executive summary should be the least page as possible, provided that it must cover all the important and relevant information for financial users to make economic decision accurately based on the every single word there. In my opinion, an executive summary is standard and sounds the best with approximately eight to ten pages.

With the existence of executive summary, it is likely to replace those parts, which are not important so as to achieve economic of presentation. Therefore, let’s view what are likely to be the contents of an executive summary. Firstly, an executive summary should begin with the CEO statement together with a mission statement. This is a statement describing the key elements of the report by the senior management person. It sounds similar to the chairman’s statement but this would nevertheless review the vision and strategy of the company.

Through this part, the shareholders can know what is exactly happened in the company throughout the whole year. The corporate vision is set according to the future, and discussed on how the vision integrates political, economic, socio-cultural and technology (PEST). The corporate strategy may then being reviewed with consistency to the current global challenges. It is important that the goal of the organisation and what it stands for or aims to achieve is stated, preferably as the first item. Secondly, executive summary should come with a statement of terms and jargon.

This is a guide to reading this report. Obviously, in a complex annual report, there are a lot of terms and jargons that are not commonly used in the daily conversation as well as writing. Different companies have different hardly understandable terms and jargons, depending on the industries they fall in. Besides, some accounting terms and jargons, which are the same for all the companies reporting entity, should be explained clearly the definition and its functions. For example, minority interests, extraordinary items, fully diluted EPS and etc.

are those words which are only apply in reporting entity. Actually, what are the meanings of these words? If the users seek dictionary for help, they might only get the surface meaning of the words but not the exact meaning wish to be presented by the accountant. As a result, this statement is useful to provide users with relevant information so as to deal with a complex annual report in depth. By constructing strong knowledge of understandable, the economic decision made would prove to be more accurate!

To enhance the quality of the executive summary, a statement of opinion about the corporate performance carried out by rating agency and financial analyst should be enclosed (in summary form) as well as in the annual report (in full format). This enables the increment of investor confidence towards the company. For instance, the executive summary should cover a page where it mentions the information and news about the company (for instance, the potential risk and prospect of the company in the changing world, global competition and the threaten of market substitute items and etc.

), where these are being carried out by the rating agency and financial analysts. By having the external moderators to the company, this will again enhance the confidence of the financial users as the quality of professional work guarantee the accuracy of company position, performance, and even the users’ decision making Besides, disclosing a statement of share price position throughout the year should be encouraged in executive summary (in summary form) as well as in the annual report (in full format). In the normal practice today, it seems that the corporate never pay much concerns to this matter.

In this statement, the company should attach the monthly highest and lowest record of share price (boom and recession) and the monthly volume of transaction. By disclosing this statement, stakeholders can easily obtain the financial information, thus comparing the trend of market share price in order to know the stability of the company and the external environment factors which influence market share trend (for instance, the US 911 is such an external environment factor which tremendously affect the stock market and this tragedy is beyond the expectation of the financial users).

We believe that those stocks, which are in great demand, will definitely enhance to company’s position and performance, leading the company to be categorised in the popular share board in the stock market. Next, as mentioned, an executive summary should act like a summary financial statement. Here, it should disclose the summary of income statement, balance sheet, statement of changes in equity and cash flow statement. Simultaneously, pictorial graphics (bar chart, pie chart, curve and etc. ) should be presented to ease the understandability of the financial users and make the statements look more interesting and colourful.

This disclosure needs not to be represented in full as what the current practice shown in full-detailed. The ultimate way of presenting this summary of financial statements should lie with the vital title, which the financial users pay their greatest attention and interest on it. It is a useful feature to show comparisons over the last few years (suggested 5 years) or so in summary form to enable the progress of the organisation to be seen at a glance. For instance, in an income statement, the summary of financial statement is suggested to disclose these titles and figures without further computation work, such as: [see Appendix for example]