Summary annual reports: length, readability and content

  • Michael E. Bradbury, Pei-Chi Kelly Hsiao, Tom Scott
  • Accounting and Finance, May 2018, Wiley
  • DOI: 10.1111/acfi.12370

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What is it about?

Summary financial statements are touted as an alternative channel for communicating financial information to reduce the clutter and complexity of financial reporting. However, there has been almost no research on whether such summaries are successful. We contribute to this issue by providing evidence on whether summary annual reports are successful in reducing the information overload and complexity of annual reports.

Why is it important?

Our research has several points of interest for the objectives of financial reporting and in particular the nature of the recipients of those reports. Standard setters and regulators need to be aware of this study and how it affects the communication of financial information. First, it is important for regulators to consider the user and purpose of the SAR. Clearly, it is not a substitute for the AR to be used by uninformed readers. SAR are technical documents where understanding relies on users that are knowledgeable and experienced. Second, it is known that financial analysts try to obtain a broad view before delving into specifics. Hence, the SAR might provide use documents such as prospectuses and business cases, with the AR available for those that need to drill-down further. Third, will need to judge between including required content in SAR and the length and complexity this might create. Fourth, preparers of SAR ought to think about simplifying content not merely summarising the content of the AR.

Perspectives

Professor Michael Eric Bradbury
Massey University

All parties involved in production of financial reports (firms, analysts, auditors, the accounting profession, standards setters and capital market regulators) have expressed concerns about the length and complexity of financial reporting. The impact of this is significant for the New Zealand economy. A Standard and Poor Global survey reported that 39% of New Zealanders are not financially literature, suggesting that financial reports are not understandable to ‘mum and dad’ investors. This may contribute to only 1 in 5 Kiwis owning shares compared to 1/3 of Australians and 1/2 of Americans (Colmar Brunton research).

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http://dx.doi.org/10.1111/acfi.12370

The following have contributed to this page: Professor Michael Eric Bradbury and Assoc. Professor Tom Scott