Usefulness of narrative reports and its characteristics

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COURSE: Financial Management

BE100: Introduction to Accounting

Coursework 3 – Individual Assignment


Topic: Write an essay to critically discuss the usefulness of narrative reports and the characteristics of a good narrative report. Support your discussion with reference to the annual report of any public listed company, such as Tesco or Sainsbury’s.

Nowadays, with fast developing of many countries all over the world, there are a lot of businesses which opened, existing organisations compete with each other to remain successful in the market so every business or organisation need to have their own strategies to keep successful or increase their reputation in the market. There is a useful tool that will help every business or organisation know exactly how good their business are. That is annual report, especially narrative report. This essay will be discussed deeply about narrative report such as what is narrative report, how useful of narrative report for business, the main and key characteristics of good narrative report.

First of all, narrative report is a report that give the non-financial information included in annual reports and meaningful image of the business about strategy, performance such as quantity of product was sold, how much they earned…, their position in large market, how they need to do in the future to keep their business and increase profit and it can be used by many people such as shareholders, lenders, customers, employees... Also, narrative report includes “chairman’s statement, director’s remuneration report, director’s report, business review / the strategic report and other report such as corporate governance disclosures, and corporate social responsibility and environmental reports”.

There are many advantages for people who use narrative report to help them make the best decision. Narrative report shows how much a business earns in sales so users can know exactly business’s sales increased or not so for the manager or director, they can make a new plan or new strategy to keep their business; for shareholders, they know about the figures of that organisation to decide investing more or not... The sales can be fluctuated, but narrative report should be able to identify all activities in business and highlight it to give clear understand for users. For example, “Tesco made best profit for three year in Christmas 2013” because they knew where is their weak points for last year so improve it sharply as they base on financial report, narrative report to know which catalogues cannot or weak sales in Christmas. From that point, the manager or director decided new strategies to sell more in Christmas 2013 such as send to Tesco’s club member many coupons or discounts for products to encourage they try new products or using more products in Tesco. To be more precise, there are some figure that shows Tesco had best sale in Christmas 2013 such as “Tesco reported that sales excluding new store openings, VAT and petrol grew 1.8% that compared with same time of 2012, online food sales increased 18%”.The most successful of Tesco were in online food because managers knew about trend nowadays and use narrative report to know in 2012, there are increasing orders in online food step by step that Tesco’s manager compared with figure in 2011 by narrative report 2011. Furthermore, narrative report design to show how strong business is in future or “suggest discussion in many situations for expectation of believable between managers, directors and other market participants such as stockholders, shareholders, employees…rather than focusing on

performance figure (Blair,2003) and this can be a great tool to communicate between them. Management can use narrative report to deliver the signals that say what they need to shareholders, investors or many other stakeholders in the hope of securing higher market valuation. It will show investors who are business’s competition and how they influent to their business so they need to think over about it to have plans or any new strategies to face and respond with that situation. For stakeholders, it helps them to know exactly about their long-term effect on corporate valuation. Therefore, narrative report can help about the cost for business, know which the best cost for business is to prepare and increase market valuation and get to lower cost capital funds”.

Therefore, how to do good narrative report so show every strong point of this report, there are some main characteristics according to ACCA& Deloitte survey (2010, p.12) that we need to consider which are “relevant to the decision making needs of users, readily understandable by users, balanced (good or bad news), forward-looking, objectively supportable, comparable over time”. Firstly, about balance (providing both good and bad news), this one is very important for every business because they need to exactly how is their business. As we know, a business cannot be always successful so business need to know bad news, do not avoid that to make their business better in future. For example, “in October 2013, Tesco reported they was decreased by 23.5% in profits during the first 6 months”. In this news, Tesco provided that so bad news for one of 4 biggest supermarkets in UK. However, from this report, Tesco’s manager need to research why they lost too much profit like that. They can see in narrative report to know which products or catalogues drop in sales and where Tesco cannot sell more. In the report, “Tesco said profits fell 67% in Europe to £55m, while Asian profits, excluding China, dropped 7.4% to £314m. UK trading profits rose 1.5% to £1.13bn”. Therefore, the report show big problem for Tesco is in Europe, the reason is their competitive like Sainsbury, Waitrose… had many new strategies to encourage buying from customers. With balanced (good and bad news), that will help business go on the right way, always encourage them to think how to make more profit, get more customers, do not too happy with good news because the competitors would be more strong if this business always use old strategies or plans. Secondly, about forward-looking, it might not be difficult for forward-looking information that business need to provide, but forward-looking information need to be in right case and right situation so it can be help for business. “The forward-looking orientation is mean highlighting, identifying, clear and communicating for future plans of business that can be done by investors, manager, directors. Also, the process of communicating need to be made to achieve long-term of business’s aim and objectives. Anything in forward-looking statement will influence the business’s development, performance and position in huge market”. In Tesco losing profit case, the board of business need to have a meeting to have some solutions for this case, they can write some forward-looking such as give more discounts, sell more kind of products… in narrative report so they can solve, reduce losing or even increase their profit.

In conclusion, narrative report is a very important report for every business all over the world which are big or small because it will increase their chance to make more profit for

their business, know exactly where are strong or weak points of their organisation by record all of the figure of sales or maybe know about how much their competitors sell or their profit to compare, research why competitors have more than their business. Also, using narrative report, it will help business go on the right way to increase profit, reputation, get more customers and be a strong rival with other competitors.

Reference

Anonymous. 2014. [Online] Available at: http://www.pwc.com/gx/en/corporate-reporting/assets/pdfs/860-global-forward-looking-guide.pdf [Accessed: 10 Feb 2014].

BBC News. 2014. Christmas sales boost for Tesco. [Online] Available at: http://www.bbc.co.uk/news/business-20968358 [Accessed: 8 Feb 2014].

BBC News. 2014. Tesco blames profit drop on Europe. [Online] Available at: http://www.bbc.co.uk/news/business-24361465 [Accessed: 10 Feb 2014].

Magda Abou-Seada, 2014. Narrative report, BE100 Introduction to Accounting. University of Essex, unpublished

Peter Yeoh. Narrative reporting: the UK experience, BE100 Introduction to Accounting [Online via internal VLE] University of Wolverhampton. Available at: www.emeraldinsight.com/1754-243X.htm[Assessed: 9 Feb 2014]

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