Corporate Reporting Too Focused on Short-Term Performance, Says KPMG Report

Annual reports need to provide more in-depth strategy discussion, backed by relevant operational KPIs so that investors can take a longer-term view of corporate health and performance, according to KPMG International’s second annual Survey of Business Reporting.

Companies are focusing their performance reporting, strategic discussion and risk assessments on short-term financial objectives, resulting in significant gaps in the information reported to investors.

According to KPMG’s second annual Survey of Business Reporting, an evaluation of 270 annual reports from larger public companies in 16 countries, the short-term focus of corporate reporting is readily apparent.

The survey highlights that, of the reports surveyed, 44% do not look beyond short-term initiatives when discussing strategy. Only 9 percent provide a 5-year track record of operational performance. Only 11 percent show how a company’s risk profile has been managed over time.

There is no indication that reports need to be longer – with current reports averaging 204 pages in length. Annual reports could, however, be better focused. On average, the financial statements made up 42 percent of each report surveyed, while just 15 percent of each report provided information on performance and prospects, and 14 percent on business and strategy.

“Financial information is not the only data that matters to investors,” says Mark Vaessen, Global Head of IFRS at KPMG International. “When evaluating a company, investors also need to be able to assess the health of a business, its growth potential and the long-term sustainability of its earnings.”

Room for improvement

While some companies are beginning to report on the most significant elements of business performance outside of financial results, there is room for improvement.

Currently, few reports show how a business is progressing against its operational priorities; only 17 percent tell investors whether the business is winning or retaining customers and only 7 percent provide information on order-book or sales run-rate to explain how the baseline performance of a business has changed. Indeed, 73 percent of the reports surveyed do not discuss customer-focus as a key business objective.

The survey looked at performance information across six key areas of business health, but only 11 percent of the reports came close to covering these. While 58 percent highlighted performance metrics related to products, only 41 percent reported on customer-related indicators, 40 percent on efficiency indicators, 35 percent on staffing indicators, 22 percent on R&D indicators and 15 percent on brand indicators.

According to the KPMG report, corporate reporting needs to find a better balance between reporting of short-term indicators, and metrics that highlight long-term viability and business health of a company.

 

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