DISCLOSURE IN COMPANY REPORTS

This report presents the results of a research project concerne !ith iscretionar" financial isclosures #" U$ co%panies& The %ain purpose of the research !as to e'a%ine the e'tent to !hich the pu#lication of for!ar (loo)in* infor%ation in the annual reports of co%panies is associate !ith the interest sho!n in these reports #" professional financial anal"sts& This research for%s part of a #roa er project that is concerne !ith the causes an conse+uences of ,oluntar" financial isclosures- an the +ualit" of financial co%%unication #et!een co%panies an in,est%ent professionals& In stoc) %ar)et(#ase econo%ies- such as the US an the U$- the infor%e pricin* of corporate securities is ,ital for econo%ic sta#ilit" an the pro%otion of sustaine le,els of hi*h(+ualit" in,est%ent #" corporations& Durin* the .//0s- ou#t !as cast on the usefulness of con,entional %easures of financial perfor%ance as a #asis for fun a%ental ,aluation& Prior to this- financial in icators of perfor%ance- such as earnin*s an #oo) ,alue per share- ha *enerall" #een percei,e as pro,i in* a useful startin* point for co%pan" ,aluation& The i%inishin* rele,ance of con,entional accountin* in icators has %anifeste itself in t!o relate !a"s& 1irst- !e ha,e !itnesse an increase ten enc" for %an" fir%s to pu#lish %ore for!ar (loo)in* infor%ation in their annual report& In ee - reports o see% to ha,e increase %ateriall" in len*th in recent "ears- %ostl" in the unau ite - +ualitati,e- an for!ar (loo)in* sections of the report& Co%panies- it !oul appear- ha,e reco*nise the li%itations of the con,entional in icators- an ha,e pro uce alternati,e for%s of infor%ation to a ress the%& A nu%#er of researchers ha,e also isco,ere that the a#ilit" of accountin* earnin*s an #oo) ,alues to e'plain co%pan" ,aluations- or chan*es in ,aluation o,er ti%e- has ecline & 1or this research- !e constructe an in e' of for!ar (loo)in* financial isclosures #ase on a etaile anal"sis of the annual reports of 23 U$ co%panies& Our anal"sis re,eale consi era#le ifferences in co%pan" practice& 4" usin* a scorin* s"ste%- !e foun that the a%ount of %aterial isclose ran*e #et!een .3 ite%s for the least forthco%in* co%pan" an ... for the %ost forthco%in* one& A practical pro#le% !as that the techni+ue !as costl" to i%ple%ent& 5e esti%ate that each annual report too) a#out 0&2 a"s to score& In our secon stu " !e too) a sa%ple of 670 co%panies for t!o financial "ears in a ro!& To a,oi the costs of scorin* 890 annual reports- !e use the pa*e len*th of the annual report as a cru e pro'" for isclosure +ualit"& Since %ost fir%s: annual reports a opt a si%ilar for%at fro% one "ear to another- the pa*e len*th *i,es a fairl" sensiti,e in ication of fir%s that ha,e chan*e their isclosure stance& Usin* stan ar econo%etric %o ellin* %etho s- !e teste !hether increases in pa*e len*th !ere either prece e #" or follo!e #" associate chan*es in anal"st forecastin* acti,it"& Our fin in*s re,eale the richness of the co%%unications that no! routinel" ta)e place !ithin the unre*ulate portions of the annual report& The results in icate a statisticall" si*nificant increase in pa*e len*th follo!in* an increase in anal"st forecastin* acti,it"& Or inar" in,estors fin it helpful to )no! a#out the ran*e of in icators that ri,e professional in,est%ent opinion& So%e finance irectors- thou*h- %a" #e intereste to learn that increase anal"st attention appears to carr" a ;price:- in ter%s of the nee to increase the +ualit" of for!ar (loo)in* infor%ation a,aila#le to this class of user& The research pro uce e,i ence consistent !ith our ,ie! that one of the %ain consi erations ri,in* the financial isclosure choices of U$ co%panies is the nee to suppl" for!ar (loo)in*- ,alue(rele,ant infor%ation to professional financial anal"sts& There !as a statisticall" si*nificant increase in pa*e len*th follo!in* an increase in anal"st forecastin* acti,it"- althou*h there !as so%e e,i ence of the re,erse effect- as a sli*ht ten enc" !as note for anal"st forecastin* acti,it" to rise follo!in* an increase in the pa*e len*th of the annual report& These results- thou*h- o run counter to the e,i ence reporte for the Ne! Yor) stoc) %ar)et&

. The research project !as set up to in,esti*ate !hether financial co%pan" is A 4 C D li)el" to pro,i e financial anal"sts !ith ata the" !ill fin useful& lin)e to the attention that financial anal"sts pa" to this infor%ation& responsi#le for the reco%%en ations %a e #" financial anal"sts& rele,ant to for!ar (plannin* ecisions %a e #" financial anal"sts&

isclosure #" a

6 Accor in* to the secon para*raph- !hat happene !ith re*ar to co%pan" ,aluation in the .//0s< A 4 C D Ne! %etho s of esta#lishin* this !ere intro uce & Uncertaint" !as e'presse a#out its i%portance& It #eca%e al%ost i%possi#le to arri,e at an accurate esti%ate& The tra itional !a"s of assess%ent !ere calle into +uestion&

7 5hat oes the thir para*raph tell us a#out co%panies: annual reports< A 4 C D There is no lon*er a re+uire%ent for certain parts of the report to #e au ite & The %anner in !hich the" eal !ith past perfor%ance has chan*e & There is an increase in the a%ount of space e,ote to future e'pectations& The" are re+uire to inclu e %aterial concerne !ith for!ar (loo)in* infor%ation&

8 In their stu ies- the researchers use pa*e len*th to assess the a%ount of for!ar ( loo)in* isclosures #ecause A 4 C D there is ,er" little ,ariation in pa*e len*th fro% one "ear to the ne't& the earlier %etho of assess%ent ha resulte in a lar*e nu%#er of ,ariations& assessin* pa*e len*th *i,es a clear in ication of the relia#ilit" of the infor%ation& the %etho of assess%ent the" use ori*inall" !as too ti%e(consu%in*&

2 Accor in* to the fifth para*raph- the for!ar (loo)in* %aterial that no! appears in %an" co%pan" reports A can pro,i e sharehol ers !ith useful infor%ation& 4 nee s to #e li%ite so as to pre,ent costs fro% risin*& C has #enefite fro% #ein* %ore strictl" controlle & D shoul principall" a ress the interests of financial anal"sts& 9 5hat oes the final para*raph sa" a#out the results of the research< A 4 C D The" !ere #roa l" in line !ith results fro% research in the US& The" !ere re*ar e as #ein* inconclusi,e& The" ca%e as no surprise to the researchers& The" confir%e that anal"sts: pre ictions are relia#le&

Rea the follo!in* article a#out the use of *raphs in annual reports& Choose the #est !or to fill each *ap fro% A- 4- C or D #elo!& 1or each +uestion 3 ( .6- %ar) one letter =A- 4- C or D>&

?RAP@S IN ANNUAL REPORTS

Increasin* attention is #ein* pai to the ,isual =3>&&&&&&&&&&&&&&&&of corporate annual reports ( the charts- photo*raphs an *raphs& Aca e%ics an practitioners ali)e =A> BBBBBB&the i%%ense po!er of *oo ,isuals in the co%%unication process ( a

!ell( esi*ne *raph is !orth a thousan !or s& The e'istence of *raphs of )e" financial =/>&&&&&&&&&&&&&&&in corporate annual reports is a critical ele%ent of co%%unication !ith sta)ehol ers- especiall" non(e'perts& 4ut *raphs are not for%all" au ite an there is the potential for *raphs to #e =.0> BBBB that the" *i,e too positi,e a picture of a co%pan":s fortunes& A recent stu " has pro,i e e,i ence that those responsi#le for annual reports 5e- therefore- ur*e those !ho BB &&& in the *raphs ispla"e &
C C C C C C constituents eclare per%utations controlle !arrante #elief D D D D D D facets appreciate ,arieties operate earne con,iction

so

consciousl" or unconsciousl" o in ee select *raphical esi*ns that ten to con,e" a %ore fa,oura#le i%pression than is =..> BBBB& see) clarit" of %eanin*- #efore users lose =.6>
3 A / .0 .. .6 A A A A A A co%ponents conclu e transfor%ations %anipulate entitle assurance 4 4 4 4 4 4 factors istin*uish ,aria#les influence rate confi ence

prepare reports to pa" close attention to the #asic principles of *raph esi*n an to

Rea the follo!in* e'tract fro% a report a#out 1inancial Share Ser,ices Centres& Use the !or s in the #o' to the ri*ht of the te't to for% one !or that fits in the nu%#ere *ap in the te't& 1or each +uestion .7 (- !rite the ne! !or &

1INANCIAL S@ARED SERCICES CENTRES

The %ar)et in !hich %ultinational co%panies operate is characterise #" *lo#alisation- =0>&&&&&&&&&&&&&&&&&&&&&&&&&&& - ac+uisitions an

consoli ation& All of these factors re+uire co%panies to stan ar ise operations so as to sta" =62>&&&&&&&&&&&&&&&&&&&&&&&& One !a" of )eepin* costs o!n an i%pro,in* =69>&&&&&&&&&&&&&&&&&& is #" %o,in* financial functions to one =63>&&&&&&&&&&&&& &&& locationD a 1inancial Share Ser,ices Centre =1SSC>& =62> =69> =63> =6A> =6/> =70> COMPETE E11ICIENT CENTRE INCREASE LI$ELY REDUCE =0> MER?E

5hen co%panies e'ten e their presence across national #or ers- it #eca%e =6A>&&&&&&&&&&&&&&& && unecono%ical to %aintain a uplicate accountin* infrastructure !ithin each countr" of operation& Decentralise co%panies- therefore- #e*an to co%#ine processes such as pa"roll an purchasin* in one 1SSC- an to sell #ac) those ser,ices at cost to in i,i ual #usiness units&

One pro#le% that 1SSCs ha,e face %oti,ate as the !or) ten s to

is )eepin* staff #e repetiti,e&

Ne,ertheless- the in ications are that 1SSCs ha,e #eco%e a fir%l" esta#lishe part of %ost #usinesses an this is =6/>&&&&&&&&&&&&&&&&&&& &&& to chan*e in the foreseea#le future& Co%panies !hich ha,e set up 1SSCs report a =70>&&&&&&&&&&&&&&&&&&&&&&&&&& in staff costs in the or er of 72E&

Rea the follo!in* notification of a co%pan":s Annual ?eneral Meetin* of sharehol ers& Use the !or s in the #o' to the ri*ht of the te't to for% one !or that fits in the nu%#ere *ap in the te't&

NOTICE O1 ANNUAL ?ENERAL MEETIN? O1 S@ARE@OLDERS

The Annual ?eneral Meetin* of sharehol ers !ill #e hel on 62 Ganuar" at the co%pan":s re*istere office for the follo!in* purposesD =7.> H To appro,e the annual report co%prisin* the au ite accounts of the co%pan" 70 Septe%#er an to appro,e the au itor:s report =76> =77> H To appro,e the #alance sheet an profit an loss account as of 70 Septe%#er an the =7.>&&&&&&&&&&&&&&&&&of net profits& H To elect persons as irectors- each to hol office until the ne't =79> REFUIRE =78> =72> Annual ?eneral Meetin* of sharehol ers an until his or her =76> is ul" electe & H H To elect an au itor for the ensuin* "ear& To eal !ith an" other #usiness !hich %a" =77>&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& #e #rou*ht #efore the %eetin*& Onl" sharehol ers on recor at the close of #usiness on 67 Ganuar" are =78>&&&&&&&&&&&&& &&& to ,ote at the Annual ?eneral Meetin* of sharehol ers an at an" a journ%ent thereof& Sharehol ers are a ,ise that the =72>&&&&&&&&&&&&&&&&&&&&&&& are not su#ject to specific +uoru% or %ajorit" =79> SUCCESS PROPER TITLE RESOLCE for the financial "ear en e thereon& ALLOCATE