Annual reports shorter but need improvement, says KPMG

Australian companies' annual reports are shorter than their global counterparts' but fail on covering key issues like business strategy, customer retention and market share, according to KPMG.

KPMG's international survey of business reporting by 270 companies in 16 countries, including 15 in Australia, found Australian annual reports are lacking the substance of those delivered overseas.

The survey also found that:

• only five per cent of Australian annual reports are devoted to addressing business strategy, compared to 14 per cent globally;
• no Australian reports in the survey revealed how brand or market share was developing, whereas 15 per cent of overseas companies did;
• only 14 per cent of the Australian companies surveyed provided information on their longer-term business strategy (56 per cent globally);
• no Australian reports included lead indicators on staff productivity, or labour relations outcomes (global 10 per cent).

Duncan McLennan, KPMG national managing partner – audit, said that while it is encouraging that Australian companies have performed relatively well in "cutting the clutter" from the financial statements in their annual reports, there is still work to be done.

"They have worked hard to keep reports relevant and concise – but there is still room for improvement in the remuneration reports, which the survey showed are quite long by international standards," he said.

"However, there are some other areas where Australian companies' reporting is trailing international best practice – the report shows we don’t perform well compared with global peers in explaining longer-term drivers of value such as use of non-financial resources. In particular, disclosures in respect of R&D, workforce efficiency, products and brand could be improved.

"Disclosures on operating performance and its link to strategy also lag overseas companies. Discussions of strategy tend to be patchy and relatively short term in nature, and it appears there is not enough detail on the key aspects of the business model for investors to take a view of the company's longer-term prospects."

The report showed that there is now some evidence of interest among Australian investors in the move towards integrated reporting.

Mr McLennan added: "Companies which are embracing better business reporting are connecting their business model strategies and KPIs more directly. Some empirical evidence is beginning to emerge of the benefits of integrated reports in relation to allocation of capital."

 

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