Annual financial reports: Regulations bite but the focus must still be on engaging with stakeholders
As the financial year comes to an end for listed companies, and books start to get closed on another 12 months’ performance, thoughts in Investor Relations (IR) circles turn to planning for annual reporting season.
As if this wasn’t already a challenging enough period for IR professionals, this year the European Union welcomes in the new European Single Electronic Format (ESEF) which harmonises the transparency of annual financial reports to make them more accessible and comparable. For issuers where their financial year begins on or after January 1, 2020, they must now prepare to deliver their annual reports according to the new standard.
The ESEF aligns with International Financial Reporting Standards (IFRS) rules, blamed by many for progressively increasing the size of annual reports. Reports that contain IFRS-consolidated financial statements will need to be tagged in a format that makes them structured and machine-readable as well as being embedded in a document format that also makes them human-readable.
Maintaining the human element
This focus on regulation that drives clarity and transparency has the potential to undermine the successful application of annual reports as a platform for corporate communications. So what can be done to ensure that annual reports continue to communicate a message to an organization’s many stakeholder audiences?
Well, regulation may not be having as negative an impact on audience engagement as perhaps it might first appear. According to Deloitte, the size of annual reports is actually significantly increased by narrative, that is, commentary by the issuer on matters that it deems relevant to its stakeholders. In 2019, narrative comprised 61 percent versus financial statements, an increase from 43 percent 20 years ago (Source: Deloitte Annual Report Insights 2019).
Indeed, other recent regulations have sought to improve engagement with the broad range of audiences now interested in a company’s activities. For instance, Section 172 of the UK’s Companies Act 2006, which requires a regulated disclosure from 2020 for qualifying companies, seeks to embody the “duty to promote the success of the company” in a company director’s responsibilities – this includes not just the shareholders but also customers, employees, suppliers, local communities and the wider environment.
Requirements like this create a challenge not only of how companies can appeal to so many stakeholder groups but also, once they overcome that issue, of how they can retain the impact of their communications across these audiences globally.
One method is to adopt an approach that emphasises the need for cultural context in the communications targeted at global audiences. Most often, this will simply require some human post-edit intervention following the initial phase where narrative is machine-translated. On occasion however, more significant human translation might be needed; some content may even need to undergo a process of reconstruction, specifically developing messages so that they feel as if they were created for that market. This level of customisation elicits optimized content that genuinely resonates with local audiences.
Sharing the annual reporting load
With experience gained from delivering hundreds of annual reports each year, SDL is a provider of end-to-end IR solutions that streamline the process of annual report creation. In addition to translation by subject matter experts with specialist knowledge of critical regulatory frameworks, SDL also supports the delivery of IR materials across all formats, content types and channels as well as offering typesetting and design services.
We align with both internal IR departments and third-party agencies, securely connecting each stage of the process to ensure accuracy of reporting and protection of our customers’ reputations globally.
Outsourcing these critical stages of annual report creation also frees up internal IR resources to focus on the narrative that helps impersonal enterprises to better connect with their audiences. Increasingly, stakeholders of all types are demanding insight into the culture, diversity and governance of the businesses with which they associate. Moreover, they are scrutinizing the environmental and social impact of commercial activity and it is this subject to which our next blog will turn.
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