244. Many banks produce financial statements that
are exceedingly long. We questioned whether such documents truly
served the interest of those that they are intended forthe
shareholders and other users of the accounts.
245. Mr Nelson, for KPMG, said that there was a constant
dialogue with users of financial statements to discuss improving
their utility, but the user community was so wide that it was
quite a challenge to meet every user's demands.
Mr Hayward, of Independent Audit, admitted that the audit profession
was culpable in creating financial statements that had "headed
for compliance rather than communication", leading to the
production of "telephone directories of data".
Professor Power echoed these comments, noting that recent disclosures
regarding financial instruments provided useful information, but
"it is questionable whether they could have enabled readers
to understand the underlying risks".
246. Mr Nelson told us that the International Accounting
Standards Board was looking at the complexity in financial statements
and seeing whether they needed to be restructured to make them
easier to understand.
The ACCA suggested that the principles outlined in the proposed
Operating and Financial Review (OFR) should be reconsidered, because
the OFR could be a valuable opportunity for organisations to reflect
on their business model and strategy, and to be able to communicate
these to its stakeholders.
As a good first step towards this goal, they suggested that firms
include an Executive Summary at the front of the financial statements.
247. We believe
that the complexity and length of financial reports represent
a missed opportunity to improve the understanding that users of
accounts possess of the financial health of firms and recommend
that the FSA consult on ways in which financial reporting can
be improved to provide information in a more accessible way. At
the moment, financial reports can be used for finding specific
bits of information, so are useful for reference, but they do
not tell the reader much of a story. We would like them to read
less like dictionaries and more like histories. A useful approach
would be to insist on all listed firms setting out their business
model in a short business review, in clear jargon-free English,
to detail how the firm has made (or lost) its money and what the
main future risks are judged to be.