1. Chapter 5 Narrative Reports

2. Financial Information Analysis2 Copyright 2006 John Wiley & Sons Ltd Annual Report (AR) Principal means of communication Produced annually by companies Increasing in size and importance Aimed primarily at shareholders Needs of other users being recognised Contains quantitative and qualitative info.

3. Financial Information Analysis3 Copyright 2006 John Wiley & Sons Ltd Annual Report ctd. Content controlled by statute, regulation, IFRS Narrative and financial elements, e.g.: financial statements and notes chairman’s, directors’, auditor’s reports operating and financial review Financial elements central Narrative elements increasing in range Supplemented by graphs, photos etc.

4. Financial Information Analysis4 Copyright 2006 John Wiley & Sons Ltd Narrative content Should supplement financial statements Required by statute: Directors’ Report Auditor’s Report Not required by statute: Chairman’s statement Operating and Financial review Chief Executive’s report Other, e.g. historical summaries

5. Financial Information Analysis5 Copyright 2006 John Wiley & Sons Ltd Chairman’s Statement Not required by statute Personal perspective Comments on macro contexts Usually refers to: significant events overall results, performance future prospects Danger of management ‘spin’

6. Financial Information Analysis6 Copyright 2006 John Wiley & Sons Ltd Directors’ Report Required by statute Impact of Combined Code extensive Includes sections on: trading activity developments during period directors (especially remuneration) employees corporate governance Directors’ responsibilities in relation to financial statements Elements may be commented upon by auditor

7. Financial Information Analysis7 Copyright 2006 John Wiley & Sons Ltd Auditor’s Report Auditor conducts “independent review” Report: clarifies auditor/management roles expresses opinion on ‘true and fair’ [or “fair presentation”] Report may be unqualified or qualified Qualified opinion significant for any company Must also comment on: internal controls compliance with Cadbury any other area of AR showing inconsistencies

8. Financial Information Analysis8 Copyright 2006 John Wiley & Sons Ltd Operating & Financial Review (OFR) Recommended by Cadbury Equivalent of US Management’s Discussion & Analysis Commentary on Operating and Financial aspects Historical assessment, but with future perspective Incorporation of Key Performance Indicators (KPIs) ASB has produced RS 1 to cover disclosures Recent govt initiative to make mandatory now rescinded But, best practice, will see it produced by many companies

9. Financial Information Analysis9 Copyright 2006 John Wiley & Sons Ltd Other elements Some ARs now include report by CEO allows CEO to communicate with users supplements Directors’ Report and OFR Historical summaries not required by statute usually summarise 5-year performance often tabular/graphical presentation Visual (graphs/photos) commonly used

10. Financial Information Analysis10 Copyright 2006 John Wiley & Sons Ltd Summary AR a principal means of communication Narrative element: substantial evolving in type and range partly controlled by statute open to abuse/manipulation Critical to any informed analysis