In late October, HM Treasury published the latest update to its regulation action plan. One of the key elements is an exemption for medium-sized private companies from producing a strategic report in their annual report, alongside removing the requirement to produce a directors’ report.
An expanded review of the modernisation of corporate reporting – covering the whole of the annual report and accounts – was also announced.
It is estimated that around half a million UK businesses will no longer have to prepare a director’s report or produce a strategic report as part of their annual report and accounts.
As we recently reported, the US government wants to reduce reporting requirements by no longer requiring listed companies to produce quarterly reports. But while this is not a requirement in the UK or Europe, many corporate treasurers on this side of the Atlantic view regular reporting to their banks as a normal part of the job.
Banks rely on information to manage their risk so if corporates provided less regular information, their banks would have less visibility and so would need to be compensated for essentially taking on additional risk, thus increasing the cost of facilities.
It is also important to recognise that information goes stale after a period of time. If a company wanted to put a leasing facility in place to acquire some new equipment, for example, the finance provider would be more assured by financial data that is no more than three months old than data from a report that could be up to six months out of date.
“Also, there are times where you are not quite as close to the business as you would like to be,” acknowledges interim treasurer, Gary Slawther. “In this case, the report is a good excuse to really brief yourself about what is going on in the business and make sure you are up to speed with any risk factors.”
He says he is a fan of preparing good financial information because it helps him understand the business better and address issues at the earliest possible opportunity and doesn’t share the view that reducing reporting frequency would encourage more long-term thinking.
“It is important to have a long-term view, but reporting is really about saying where you are at the moment,” he continues. “I used to work for a CFO who said every so often you should give the bank a bit of bad news just to let them know that you are not just a ‘good news merchant’ – and that you should tell them what you are doing about it as this will give them confidence you are being honest with them.”
He says a financial professional who just panics and wants to only give their banks good news is behaving in a childish fashion.
“Jeff Bezos spent years and years reporting losses, but his backers kept faith,” adds Slawther. “If management is so weak that they only want to report good news and therefore only address short-term issues, then they are not doing their job properly.”
Finally, although the production of corporate reports is sometimes described as a time-consuming exercise for treasury and finance teams this is only the case for companies that have not implemented process automation.
