Overcoming the challenges faced when preparing the annual report

For many stakeholders, the annual report is the key corporate communication. It tells the company’s story and can have a significant influence on perceptions.

If you get it wrong, failing to convey the desired corporate narrative is a missed opportunity. In the worst cases, errors could be embarrassing and result in unwanted media or regulator attention.

With ever-increasing demands for information, the complexities of preparing an annual report are growing. Even the best-in-class organisations have the potential for mistakes. This article sets out some key steps that can be taken to overcome common problems.

Early engagement

The root cause of an unsuccessful annual report usually comes from failing to prepare. The annual report is one of the most comprehensive writing and design products prepared by the company, and it requires input from across the organisation. With continuously competing demands for time, people often push the annual report drafting to the bottom of the list.

The result is that sections are sometimes prepared in a rush, with little time for review, and then collated into an overall report full of varying messages, inconsistent styles and errors.

The preparation of the annual report is a project of high importance and it should be treated that way. It is crucial to obtain an executive committee member sponsor with overall responsibility and to appoint a dedicated project manager to lead the day-to-day activities. It is also useful to separate the report into a few key sections. For example, the Strategic Report, the Governance section, and the Financial Statements. These should be linked to sub-managers who can be held accountable for each section. These key individuals can form part of an annual report committee, which meets regularly to keep all progress under close review and tracked to a timetable.

Navigating the ever-changing and complex reporting requirements should be tackled early. Working with the sub-managers, the project manager should work through understanding new reporting requirements, what information will be needed and who will contribute to the content writing. If in-house specialist skills do not exist in certain areas, consider third-party involvement where information gaps exist.

Achieving cohesion

Multiple contributors can result in a document becoming disjointed and lacking the consistent style and messaging required for a seamless report. Where possible, key themes and messages should be set from the start. Clear guidance needs to be given on writing style; offer contributors examples of text written in a variety of ways, focusing on the desired level of diction. While out-of-the-box thinking should be welcomed in the early stages, these changes can cause significant issues if they come late in the process and should be avoided.

Develop a blueprint report, incorporating pictures, diagrams, layout and graphic design against which the content can be added. Benchmark against other external communications to ensure consistency. If an interactive digital version is also created for users, ensure this is included in the planning process. The blueprint should be signed off by the executive committee sponsor and then again at regular intervals as the content builds. This can help to avoid last-minute changes that arise from internal differences of opinion.

Accelerate the audit preparation

Debating matters with the auditors into the early hours of signing day is not a place where anyone wants to be. With the efficiencies of modern finance systems and significant coverage that data-driven audit techniques can accomplish, it is not usually the routine transactions that cause delays. Often the major workload and differing views come from a few key estimates and significant judgements. There is no reason why these discussions cannot be resolved as early as the planning stage, in principle at least, to allow for a smoother audit close.

 

Much of the audit process focuses on financial issues. However, there is growing demand for assurance over other non-financial information across the whole report. This message should be clearly articulated to all content owners, particularly those less familiar with the audit process. A central storage tool should be set up, where every time a statistic is used in the report, the backup is uploaded, checked by the project manager and circulated to the audit team. This will save duplication of efforts and avoid last-minute chasing for information support.

Thorough review

With many contributors, numerous versions and late changes, it is almost inevitable that errors will occur. It is nearly impossible to eliminate mistakes completely, but the aim is to reduce them to be wholly inconsequential (a missing comma here or there). As part of the detailed planning process, key milestones should be set for review and for incorporating feedback.

Aim to tackle significant amounts of the narrative in advance of the financials being ready. For example, board member biographies or sustainability strategy can be finished early. Individual sections should be reviewed for desired content and factual accuracy, involving the use of third-party experts for assurance when beneficial. However, ensure that the full annual report is then reviewed at a later date to check for consistency in style, fair and balanced messaging throughout, and the avoidance of repetition where linkage could be utilised.

Don’t forget to incorporate cold reviews by people not involved in the drafting to check for good English and grammar, correct page numberings, headings, cross-referencing and presentational issues. Final checks need to happen again at the printing stage. Inspect and review a sample of the early copies from the printers before going ahead with the full print run.

Pre-empt the questions

The goal is always to produce clear, concise, understandable information for the users of the annual report. However, there will inevitably be additional questions asked shortly after it is issued.

Usually these will come from investment analysts looking for further insight and clarity into the company’s operations, performance guidance, or changes to accounting policies. Early engagement through the relevant channels, such as analyst calls with the investor relations department, can gauge where interest may be focused. Questions in these areas should then be anticipated in advance and responses prepared. These responses will often need input from across the business, in particular where questions relate to the rapidly changing area of environmental, social and governance disclosures.

All queries should be channelled to named representatives in either the public relations or investor relations teams. This enables these key individuals to collate responses from the business owners, ensuring consistent messaging is communicated externally.

Continuous improvement

Before the annual report preparation becomes a distant memory, gather feedback from all key contributors.&

Mistakes in the process will occur. The key point is that they are identified and understood, and plans are put in place to resolve them. Some will be easy to put right, such as cutting out repetition, whereas others could be more deeply rooted in office politics or the ability to obtain reliable data in new areas of reporting, such as climate impact. Prioritising these issues and putting early remediation plans in place is important while still fresh in the minds of the preparers.

This can also be an excellent point in time to review confirmed regulatory changes to reporting requirements, which will take some of the pressure off the planning stage of the following year.

The overall annual report production process is one that is always progressing and will continue to adapt to changing regulatory requirements, stakeholder demands and desired company positioning. No process will be perfect, but the key challenges can be counteracted to make the most of building an engaging annual report that connects with its stakeholders.

About the author
Daniel Thompson, Head of Accounting and Control, Currys plc, and Financial Reporting Faculty Board member