Reporting on corporate

governance
Annual reports must convey a fair and balanced view of the
organisation. They should state whether the organisation has
complied with governance regulations and codes. It is considered
best practice to give specific disclosures about the board, internal
control reviews, going concern status and relations with
stakeholders.
 Importance of reporting
• The Singapore code of corporate governance summed up the
importance of reporting and communication rules: 'Companies
should engage in regular, effective and fair communication with
shareholders.
• In disclosing information, companies should be as descriptive,
detailed and forthcoming as possible, and avoid boilerplate
disclosures.'
• Good disclosure helps reduce the gap between the information
available to directors and the information available to
shareholders, and addresses one of the key difficulties of the
agency relationship between directors and shareholders.
 Reporting requirements
• The corporate governance reports suggest
that the directors should explain their
responsibility for preparing accounts.
• They should report that the business is a going
concern, with supporting assumptions and
qualifications as necessary.
Some of the information that may be required in
reports
a) Information about the board of directors:
• the composition of the board in the year,
information about the independence of the non-
executives, frequency of, and attendance at, board
meetings, how the board's performance has been
evaluated. The South African King report suggests
a charter of responsibilities should be disclosed.
b) Brief reports on the remuneration, audit, risk and nomination
committees covering terms of reference, composition and
frequency of meetings.
c) An explanation of directors' and auditors' responsibilities in
relation to the accounts and any significant issues connected
with the preparation of accounts, for example changes in
accounting standards having a major impact upon the
accounts.
d) Information about relations with auditors including reasons
for change and steps taken to ensure auditor objectivity and
independence when non-audit services have been provided .
e) An explanation of the basis on which the company generates or
preserves value and the strategy for delivering the objectives of
the company
f) A statement that the directors have reviewed the effectiveness
of internal controls, including risk management
g) A statement on relations and dialogue with shareholders
h) A statement that the company is a going concern
i) Sustainability reporting, defined by the King report as including
the nature and extent of social, transformation, ethical, safety,
health and environmental management policies and practices
j) A business review or operating and financial review (OFR).
Information organisations provide cannot just be backward-
looking
• The King report points out investors want a forward-
looking approach and to be able to assess companies
against a balanced scorecard.
• Companies will need to weigh the need to keep
commercially sensitive information private with the
expectations that investors will receive full and frank
disclosures.
• They should also consider the need of other stakeholders.
 The Operating and Financial Review/Management commentary

• The Operating and Financial Review (OFR) should set

out the directors' analysis of the business, in order
to provide to investors a historical and prospective
analysis of the reporting entity "through the eyes of
management".'
• In December 2010, the International Accounting
Standards Board issued an IFRS Practice Statement
Management Commentary, which is the
international equivalent of the Operating and
Financial Review.
• The IASB stated that Management commentary should
follow these principles:
a) To provide management's view of the entity's
performance, position and progress;
b) To supplement and complement information
presented in the financial statements;
c) To include forward-looking information;
d) To include information that possesses the qualitative
characteristics described in the Conceptual
Framework
ELEMENT
Nature of the business
Objectives and strategies
Resources, risks and relationships
USER NEED
The knowledge of the business in which
an entity is engaged and the external
environment in which it operates.
To assess the strategies adopted by the
entity and the likelihood that those
strategies will be successful in meeting
management's stated objectives.
A basis for determining the resources
available to the entity as well as
obligations to transfer resources to
others; the ability of the entity to
generate long-term sustainable net
inflows of resources; and the risks to
which those resource–generating
activities are exposed, both in the near
term and in the long term.
ELEMENT
Results and prospects
Performance measures and indicators
USER NEED
The ability to understand whether an
entity has delivered results in line with
expectations and, implicitly, how well
management has understood the entity's
market, executed its strategy and
managed the entity's resources, risks and
relationships
The ability to focus on the critical
performance measures and indicators
that management uses to assess and
manage the entity's performance against
stated objectives and strategies.
 Voluntary disclosure
Voluntary disclosure can be defined as any
disclosure above the mandated minimum.
Examples include a Chief Executive Officer's
report, a social/environmental report,
additional risk or segmental data.
• Disclosing information voluntarily, going beyond what is required
by law or listing rules can be advantageous for the following
reasons:
a) Wider information provision
Disclosures covering wider areas than those required by law or
regulations should give stakeholders a better idea of the
environment within which the company is operating and how it
is responding to that environment.
This should enable investors to carry out a more informed analysis
of the strategies the company is pursuing, reducing information
asymmetry between directors and shareholders and perhaps
attracting investment.
b) Different focus of information
Voluntary information can be focused on future strategies
and objectives, giving readers a different perspective to
compulsory information that tends to be focused on
historical accounting data.
c) Assurance about management
Voluntary information provides investors with further
yardsticks to judge the performance of management,
improving accountability. Its disclosure demonstrates to
shareholders that managers are actively concerned with all
aspects of the company's performance.
d) Consultation with equity investors and other
stakeholders
• The voluntary disclosures a company makes can
be determined by consultations with major
equity investors such as institutional
shareholders on what disclosures they would
like to see in the accounts.
• There can also be consultation with other
stakeholders if they are influential.
Principles that are useful for voluntary disclosure in general:
a) The process should be planned and transparent, and
communicated to everyone responsible for preparing the
information.
b) The process should involve consultation within the
business, and with shareholders and other key groups.
c) The process should ensure that all relevant information
should be taken into account.
d) The process should be comprehensive, consistent and
subject to review.