In recently year, there has been greatly tinkering with accounting and financial reporting standards, thus the nature of the narrative reporting has changed basically and became a significant medium ofÂ financialÂ communication between public listed company and diverse stakeholders. In particular, narrative reporting playing important role in the corporate annualÂ report by allowing company management to present annual performance to attractive and differentiated picture of the business in a likely accessible method which can improve the relationships with stakeholder. Furthermore, the principal processes compulsory to produce this information also enhance Board of Director effectiveness, efficiency and improve corporate governance. However, those narrative reporting are unaudited and thus could be matter to impression management. (Clatworthy and Jones, 2003)
To this end, this present paper has three main objectives. First, the paper introduces the key element of the narrative reporting which is so important in the annual report. Second, this paper is describes the benefit and weakness of the narrative reporting. Lastly is discussing the step to effective narrative reporting.
Key element of Narrative Reporting
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In recent years, there has been a market growth in narrative reporting with media other than the hard copy annual report as carriers of reporting message. Due to the growth, large companies continue to produce elaborate, length and details annual report with the narrative section such as chairman's statement, chief executive's review and risk disclosures which defined as those parts of the annual report. Thus those management frequently complain about that they has hardly have time to operate their business due to the increasing of regulatory and legislative. (Campbell and Slack, 2008)
As carriers of reporting message, the narrative reporting will provide the information needs of the market like chairman's report and environment information in annual report which affected by another organizational background such as environment circumstances, industry standard and market rivalry and those information is required for commercial transparency and responsibility of management. The business reporting model has reached a consensus that needs to extend beyond the traditional financial reporting model that emphasizes quantified financial information. (Bryant and Cox, 2004) However, the narrative reporting still conservative, conformity and didn't delivering the significant information market analysts need. Therefore, there has been a cornerstone of the argument surrounding the reporting method and the reason to increasing demand for narrative reporting to better explain the quality and sustainability of company performance.
Under such pressure, it is not surprising that companies often adopt a narrow response to demands for narrative reporting. However, they are actually focused as much on how businesses are run, as on reporting. For those who embrace these demands, rather than shy away from them, the opportunity exists to use them as a basis for creating real competitive advantage.
Narrative reporting offers a mechanism to support the creation of a more commercially attractive and differentiated picture of the business which can lead to better investor understanding and improved stakeholder relationships. Furthermore, the underlying process necessary to produce this information can also enhance Board effectiveness and improve governance.
Forward-looking companies are already seeking ways to turn these demands from a burden into an opportunity. However, if these opportunities are not grasped and the process is not planned adequately, businesses run the risk of damaging their reputation among stakeholders, their market rating and ultimately their competitive positioning; never mind the risk of legal and regulatory challenges.
So how can companies identify and maximize the opportunity this information provides while ensuring the risks are managed? At PricewaterhouseCoopers, we have used our expertise to create this essential guide to narrative reporting in order to help companies meet the demands and enable them to generate the benefits. The task of realizing the opportunities needs time and effort, but our 10 point plan provides clear guidance on where this should be directed.
Companies are facing ever-increasing demands for narrative reporting and the sooner they start to prepare for it, the better positioned them will be to avoid the pitfalls and reap the benefits - act now and the benefits are there for the taking!
For a decade, or more there has been ongoing debate globally around the scope and quality of information in corporate reports. In response, as Exhibit 1 illustrates, legislation and guidance encouraging companies to report a broader set of information has evolved. These regulations and guidance encourage companies to reveal just what information they rely on to manage their business. Some of this information may already be reported, but not necessarily in the annual report, whilst other information may currently be used internally, but not reported. If this is the case, companies will need to assess whether the information is considered robust enough to disclose publicly. At the extreme, a review of the information-set available to understand strategic progress may highlight information that is missing. In this situation, companies will need to consider how to close the information gap(s) that exist and how to improve the nature and quality of information used to manage the business. Throughout this publication we consistently refer to the broader information set increasingly being demanded in annual reports. This delivery vehicle was chosen because of its familiarity globally. However, as you go through this publication, we would encourage you to consider how the challenges faced and the observation and recommendations made are as applicable to any other medium a company chooses to communicate in.
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Melanie Bryant, Julie Wolfram Cox, (2004),"Conversion stories as shifting narratives of organizational change", Journal of Organizational Change Management, Vol. 17 Iss: 6 pp. 578 - 592 : http://dx.doi.org/10.1108/09534810410564569
Dr David Campbell, Richard Slack, (2008), "Narrative Reporting: Analysts' Perceptions of its Value and Relevance" The Association of Chartered Certified Accountants Available at: http://nrl.northumbria.ac.uk/2583/ (Online) Access at