It's time to catch up with reality

Full results will soon be out at virtually the same time as the preliminaries. Gerry Acher wants to bring down the paper mountain

As the December year-end reporting season draws to a close, let us look back at the developments in the past year in the form and content of preliminary announcements - the key mechanism through which listed companies communicate their annual results to the market. While the expanded content of preliminary announcements has resulted in analysts having at their fingertips most of the information necessary for performance appraisal, that development in reporting practice has not been without its disadvantages.

The purpose of preliminary announcements is to get information to the market as soon as it is reliably available. It has to be "agreed" by the auditors. In the 1980s those announcements were often based on unaudited accounts and sometimes a month passed before the accounts reached shareholders.

But change brought about through technology has been and will continue to be dramatic. Accounts timetables have been shortened by weeks as automated processes with built-in checks take over from manual grind. Increasingly these days preliminary announcements are "audited"; that means to all intents and purposes that the statutory accounts are approved and signed on the same date as the preliminaries are issued.

Next year, with the growing development and use of the Internet, full accounts of many listed companies will be published electronically within days or even at the same time as the preliminary announcement. Thus the main objective of preliminary announcements of getting information to the market will have been virtually lost.

In an earlier report and survey KPMG pointed out that the key issue is not whether preliminary announcements are working - clearly they are, with the analyst receiving more and better information - but whether all aspects of the reporting cycle are working together as well as they might. Is the current combination of the preliminary announcement, annual report and accounts and, possibly, summary financial statement an efficient system for providing the various users of financial information with the data for their needs? Is the expansion of the preliminary announcement into a mini set of accounts efficient and could the whole reporting process be managed more effectively?

The content of preliminary announcements appears to have changed very little over the past 12 months. The companies in our survey continue to produce announcements running into many pages to feed the information needs of analysts. However, I believe the current process still represents an inefficient use of a company's time and resources.

The production of detailed preliminary announcements makes the year- end reporting cycle as a whole inefficient. With the evolution of the preliminary statement into a mini set of accounts, there is significant duplication of reporting effort between the statutory report and accounts and the earlier results statement. That is widely acknowledged and I am pleased to note that the Accounting Standards Board has adopted a project to consider the framework for year-end reporting.

In our earlier review and survey we outlined our suggestion for reforming the year-end reporting process. We suggested that the analysts' need for narrative and numerical information could be satisfied by making available, on the day the results are announced, the audited statutory accounts and operating and financial review. That would avoid the need for a separate detailed preliminary statement and thus minimise the current duplication of reporting.

Would the information be available to produce the report and accounts by announcement day? In our survey 65 per cent of preliminary announcements were based on audited accounts, suggesting that the information would be available. For those companies basing their preliminary announcement on unaudited accounts there would clearly be a delay in announcing results if one waited for the full report and accounts. In that instance the company would need to manage analysts' expectations - a short delay but much more detailed information.

Another concern that companies may raise is the extent to which they would be able to produce full glossy accounts by announcement day. That objection is perhaps misconceived: analysts do not require glossy booklets with colour photographs for making investment decisions. The annual report and accounts should be produced on plain paper for the analysts (who probably look at them on a screen, in any case) and only subsequently - if at all - in full glossy form for distribution to shareholders. If companies, understandably, feel the need for a glossy shareholder publication, then why not reserve the gloss for the shorter summary financial statement?

So are any companies doing this at the moment? In the current reporting season Inveresk, Johnston Press, Kwik-Fit and The Laird Group all produced the annual report and accounts on the same day that they announced their results, with Kwik-Fit achieving this objective within 20 days of its year-end. In each case the preliminary announcement consisted of a financial review and selected financial data extracted directly from the annual report and accounts. From our inquiries we understand that these companies have adopted the policy of releasing their report and accounts on the same day as their preliminary announcements for a number of years.

I am encouraged to see a number of companies already following that approach, showing it to be practicable. Combining speed with clarity must be in the interests of all concerned; the company; the analyst and the shareholder. Some companies have shown that it can be done, and they would not be doing so if they did not see clear advantages in the process. I urge other companies to look at how they report to the market.

Gerry Acher is KPMG's head of audit and accounting.