Narrative Reporting - Give yourself a head start

Preparers’ Guide

Narrative Reporting

Give yourself a head start*

Contents

Page

Give yourself a head start 02

Narrative reporting in a nutshell 03

A summary of legislation and guidance on narrative reporting

Companies will get out what they put in 04

The risk of ignoring the demands, the beneﬁts of embracing them

What are the challenges? 06

The key implementation challenges companies will face

What should companies be doing now? 10

10 key steps to effective narrative reporting

Process of evolution, not revolution 17

Recognition that change will not happen overnight

Other narrative reporting publications 18

Narrative Reporting – Preparers’ Guide

Give yourself a head start

For those who embrace

these demands rather

than shy away from

them, the opportunity

exists to use them as a

basis for creating real

competitive advantage

In recent years there has been much tinkering

with accounting and ﬁnancial reporting

standards. But surveys of analysts and

investors across the globe indicate that

current models are still too backward-looking

and compliance-driven. Put simply, they

aren’t delivering the information analysts and

investors need.

This has been a cornerstone of the debate

surrounding the reporting model for over a

decade and the reason behind the increasing

demand for narrative reporting to better

explain the quality and sustainability of

corporate performance. However, companies

often bemoan the fact that they barely have

time to actually run their business due to

the increasing mountain of regulatory and

legislative demands being made of them.

Under such pressure, it is not surprising that

companies often adopt a narrow response

to demands for narrative reporting. However,

they are actually focused as much on how

businesses are run, as on reporting. For those

who embrace these demands, rather than shy

away from them, the opportunity exists to use

them as a basis for creating real competitive

advantage.

Narrative reporting offers a mechanism to

support the creation of a more commercially

attractive and differentiated picture of the

business which can lead to better investor

understanding and improved stakeholder

relationships. Furthermore, the underlying

process necessary to produce this information

can also enhance Board effectiveness and

improve governance.

Forward-looking companies are already

seeking ways to turn these demands from a

burden into an opportunity. However, if these

opportunities are not grasped and the process

is not planned adequately, businesses run

the risk of damaging their reputation among

stakeholders, their market rating and ultimately

their competitive positioning; never mind the

risk of legal and regulatory challenges.

So how can companies identify and maximise

the opportunity this information provides

while ensuring the risks are managed? At

PricewaterhouseCoopers, we have used our

expertise to create this essential guide to

narrative reporting in order to help companies

meet the demands and enable them to

generate the beneﬁts. The task of realising the

opportunities needs time and effort, but our 10

point plan provides clear guidance on where

this should be directed.

Companies are facing ever-increasing

demands for narrative reporting and the

sooner they start to prepare for it, the better

positioned they will be to avoid the pitfalls

and reap the beneﬁts – act now and the

beneﬁts are there for the taking!

A note on terminology: narrative reporting

Throughout this publication we use the term ‘narrative reporting’ to relate to the critical contextual and non-ﬁnancial information that is

reported alongside ﬁnancial information so as to provide a broader more meaningful understanding of a company’s business, its market

position, strategy, performance and future prospects - including quantiﬁed metrics.

Give yourself a head start*

Narrative reporting in a nutshell

A summary of legislation and guidance on narrative reporting

For a decade, or more there has been ongoing debate globally around the scope

and quality of information in corporate reports. In response, as Exhibit 1 illustrates,

legislation and guidance encouraging companies to report a broader set of information

has evolved.

These regulations and guidance encourage

companies to reveal just what information they

rely on to manage their business. Some of this

information may already be reported, but not

necessarily in the annual report, whilst other

information may currently be used internally,

but not reported. If this is the case, companies

will need to assess whether the information is

considered robust enough to disclose publicly.

At the extreme, a review of the information-set

available to understand strategic progress

may highlight information that is missing. In

this situation, companies will need to consider

how to close the information gap(s) that exist

and how to improve the nature and quality of

information used to manage the business.

Throughout this publication we consistently

refer to the broader information set

increasingly being demanded in annual

reports. This delivery vehicle was chosen

because of its familiarity globally. However,

as you go through this publication, we

would encourage you to consider how the

challenges faced and the observation and

recommendations made are as applicable

to any other medium a company chooses to

communicate in.

Exhibit 1: Examples of guidance and legislation on narrative reporting

Guidance

Global

IASB discussion paper on Management Commentary (published October 2005)

International Organization of Securities Commissions (IOSCO) General Principles Regarding Disclosure of Management’s

Discussion and Analysis of Financial Condition and Results of Operations (published February 2003)

Territory

Australia

Group of 100’s Guide to review of operations and ﬁnancial condition (published 1998, updated 2003)

Canada

CICA guidance on MD&A disclosure (published November 2002, updated May 2004)

United Kingdom

Accounting Standards Board Reporting Statement: Operating and Financial Review (published January 2006)

United States

SEC Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations

(published December 2003)

Legislation

European Union

Article 46 of EU 4th Directive and Article 36 of 7th Directive (published May 2004).

Narrative Reporting – Preparers’ Guide

Companies will get out what they put in

The risk of ignoring the demands, the beneﬁts of embracing them

Companies already provide a plethora of ﬁnancial information in their annual report,

and other communications medium, and support this information with varying degrees

of detail around narrative and contextual information such as market dynamics,

strategy and corporate social responsibility. Furthermore, by encouraging companies

to provide information routinely used to manage their business, the guidance and

legislation imply that the information should already be available. Surely with all the

other pressures – reporting and otherwise - being placed upon companies, they can

pay mere lip service to these demands for narrative reporting? The risks and beneﬁts

outlined below suggest they shouldn’t.

These demands raise many risks for

companies. Nevertheless the greatest of them

lies in failing to adequately plan and respond

to them – resulting in long-term damage to the

company’s investor relations, its reputation

among stakeholders, its level of public trust,

its market rating and ultimately its competitive

positioning.

Information gaps may be identiﬁed too late in

the process

Consideration of content at the last minute

in the reporting process may highlight

information gaps which cannot be addressed

in the time available. Even if the content of a

company’s communication is comprehensive,

it may have the effect of highlighting strategic

and operational weaknesses in its business

which could have been identiﬁed, and actions

taken to address them, earlier in the process.

Competitors may achieve ﬁrst mover

advantage

The communication of narrative and

contextual information will open up new

areas of corporate reputation to scrutiny and

debate. Failure to paint a convincing picture

on this broad canvas will expose companies to

unjustiﬁed comparisons and difﬁcult questions

from investors and other groups who monitor

business performance on behalf of society.

If competitors gain ﬁrst mover advantage

they will be able to help shape the information

demanded by these investors and other

groups. Companies will then be encouraged,

if not forced, to provide similar information,

regardless of whether it is appropriate to their

business model.

Failure to convey the right messages

By paying mere lip service to these demands

companies may approach the communication

of narrative and contextual information

with a tick-box mentality, simply bolting on

additional content without taking a step back

and considering the messages conveyed.

This can often result in missing information,

mixed messages and a consequent

misunderstanding by investors of what is

important to strategic success or critical

information becoming lost in the detail. If this

occurs companies only have themselves to

blame if investors misunderstand them.

Risks

Give yourself a head start*

Beneﬁts

While narrative reporting can bring a number

of risks there are also beneﬁts for those

companies who truly embrace the spirit of

these new demands in a timely fashion.

Enhanced business understanding, improved

governance and Board effectiveness

The process of responding to these demands

can provide an opportunity for Boards’ to

question the depth and breadth of information

they use and, as a result, assess whether the

limited time available in Board meetings is

being focused on the right issues. How many

Boards routinely receive lead performance

indicators that go beyond traditional

ﬁnancial numbers and how much time is

devoted to strategy and activities critical to

value creation? Over time, the challenge of

responding to these demands will provide

Boards’ with a more comprehensive picture

of corporate performance, one with new

insights into the health and sustainability of

the business.

Enhanced investor understanding and

improved relationships with key stakeholders

A company with effective narrative reporting

will give investors and other stakeholders’

deeper and clearer insights into what really

drives value in its business, and demonstrate

clearly why its chosen strategy is the right one

to take the business forward.

From PricewaterhouseCoopers ongoing

engagement with investors it’s clear that it’s

this broader picture and its completeness

and cohesion that underpins their view

of management’s’ quality. Among other

advantages this will enable companies to

improve its reputation and market rating, lower

its cost of capital, and attract and retain the

best talent.

Aligned reporting and communication

strategy

Corporate reporting is going through a period

of unprecedented change. As reported

earnings become more volatile, corporate

governance guidelines become more

extensive, and socially-responsible investment

indices become more challenging, the

discipline of reporting narrative and contextual

information consistently over time and across

mediums offers companies a framework

for providing insights into their underlying

performance.

Internally the challenge of collating a coherent

set of narrative and contextual information

provides companies with an opportunity

to reassess the practical aspects of how

information is channelled into the outside

world both in terms of the messages being

given, but also the costs incurred by various

groups (from corporate communications,

investor relations, environmental and social

reporting, employee communications etc).

Narrative Reporting – Preparers’ Guide

The increasing demand for narrative reporting has implications both internally and

externally for companies. Internally, the information increasingly being demanded will

necessitate that companies challenge the degree to which they have robust and timely

processes capable of collecting, validating and reporting a wide variety of information on

a timely basis, some of which may not have been collated, or reported externally before.

Externally, it will shift the relationship with shareholders and other stakeholders onto

an entirely new footing – one in which the transparency and credibility of a company’s

strategy and management actions will become a key competitive differentiator.

What are the challenges?

The key implementation challenges companies will face

A cohesive team

Do you know which “information owners”

should have input into developing a broader

information set?

The annual report has traditionally been the

domain of the CFO and ﬁnance team. Given

the breadth of information increasingly being

encouraged, it will now require the input of

a number of other key individuals and teams

to make it happen. From those involved

in strategy, to those involved in human

resources, R&D, customers, brands and

marketing and the environment.

The challenge for companies will be to

connect these various “information owners”

with potentially competing agendas and to

manage their expectations as the overall

structure and content of the annual report is

developed and ﬁnalised. Only in this way will a

fully integrated and coherent annual report be

produced.

Meeting investor needs

Do you understand what information your

investors need?

Companies will need to exercise much

greater judgement than historically to

determine what information investors need

to assess the strategies adopted and the

potential for those strategies to succeed.

They will also need to consider the extent to

which issues relevant to other stakeholders

(such as: customers; suppliers; employees;

and the wider society) are also of signiﬁcance

to investors, because of their inﬂuence on

performance and value creation.

But what exactly are the needs of investors

and the issues affecting other stakeholders?

Have they been asked? Understanding their

reaction to the last analyst presentation may

not be enough. Do competitors have a better

understanding of, and response to, these

needs or issues? It is vital that companies

understand from the outset what investor

needs are if they are to be appropriately

addressed and peers aren’t given the

opportunity to steal a march and extract

competitive advantage.

Give yourself a head start*

A picture of sustainable value

Do you understand what actions drive

sustainable value in your business and can

you articulate this?

Companies are increasingly being encouraged

to identify, quantify and report publicly on the

areas of their business which drive sustainable

value – both ﬁnancial and non-ﬁnancial. This

presents the challenge of whether they truly

understand how the effective management

of their risks, resources and relationships

actually creates value in their business and

whether they can articulate this?

Companies should therefore consider to what

extent information relating to key relationships

(e.g. customers and suppliers), brands,

innovation, employees, suppliers and social

and environmental issues are important

in evaluating strategy and performance.

Furthermore, they will need to consider

whether robust, quantiﬁable ﬁnancial and

non-ﬁnancial key performance indicators

are available to support assertions made in

respect of this information.

A review of the internal information-set may

identify gaps in the information available for

disclosure. Companies will need to consider

the extent to which the gaps need addressing

in order to present a coherent picture of

sustainable value.

Information used to manage the business

Are you comfortable enough with the

robustness of the information to place it in the

public domain?

Most companies will already have systems and

procedures in place to produce information

which enables them to determine and manage

the risks to achieving strategic success, and

to assess and challenge performance against

strategic objectives. But, critically, some of

this information may have never been reported

externally before which raises two important

questions:

a) How relevant is the information?

The appropriate areas to be covered may

differ for every industry and for each company

within an industry. The ability for a generic

template to be developed which companies

may usefully apply as an input into their

annual report development process will

therefore be limited to an industry level at

best. Accordingly companies may consider

meeting with competitors to form consortia to

help develop and deﬁne appropriate industry

key performance indicators and agree on how

information should be reported.

Other guidance on what to report and how

best to structure it may be sought from

examples of good reporting practice from

companies in the same industry, or indeed,

other industries.

b) How reliable is the information?

Companies will have to decide whether they

feel comfortable enough with the reliability

of the information to place it in the public

domain. The information presented should

be the information Boards’ use to manage

their business. Accordingly, what gets

reported externally should be the output of a

formalised process, both in the determination

of the shape and nature of the content and

in the actual production of the information

itself. Companies will therefore need to

consider whether, or not, the information

to be disclosed is derived from established

processes, is sufﬁciently reliable and has been

subject to adequate controls, Board scrutiny

and governance.

Clearly, in determining what information

to report there may need to be a trade-off

between relevance and reliability.

Narrative Reporting – Preparers’ Guide

Structure and coherence

Have you considered the impact of this

broader information set on the overall

structure and content of your annual report?

Current reporting of strategy is not something

many companies typically do well. When

reporting is extended to an explanation of all

the risks, resources and relationships that are

critical to the successful implementation of

business strategies and achievement of stated

goals and objectives, there are even fewer

examples of good practice.

The information increasingly being demanded

challenges the traditional structure of an

annual report. At present most annual reports

primarily focus on reviewing historical ﬁnancial

performance whilst covering information

on strategy, and the risks, resources and

relationships necessary to successfully

implement the strategy in varying degrees

of detail.

Companies will therefore have to consider how

transparent they wish to be and what format

their annual report takes. For example, do

the Chairman and CEO continue to produce

their statements separately from an operating

and ﬁnancial review, or equivalent section,

potentially leading to excessive repetition? Or,

will the whole of the front end of the annual

report become a seamless section focusing

on this broader information set?

Alignment and corporate consistency

Is your communication strategy fully

integrated?

As companies reﬂect on the depth and

breadth of information that might be included

within their annual report and how it should

be structured, they may identify that much

of the information is already reported

elsewhere; whether it be on the web site, in

corporate responsibility reports or analyst/

investor brieﬁngs.

Whilst not all information presented through

these other media will be entirely relevant for

the annual report, the presentation of a broader

information set may provide companies with an

opportunity for a review of their wider reporting

and communication strategy.

The content in these other media used

to communicate with a wider group of

stakeholders may need to be reassessed for

on-going relevance, in the light of this broader

information set. Where information reported in

the annual report continues to be presented

through other channels there will be a need to

ensure overall consistency of message.

Give yourself a head start*

What should companies be doing now?

10 key

steps

to effective narrative reporting

Narrative Reporting – Preparers’ Guide

Adopt the right mindset

Obtain Board sponsorship and buy-in

Develop a picture of possible content

Build a blueprint report

Benchmark the blueprint

Identify the information gaps

Assess adequacy of supporting systems and procedures

Determine the level of accuracy and reliability

Create cohesion and clarity

Develop an implementation plan

Give yourself a head start*

As with any demands for more information, there is a temptation to wait until they are

directly affecting us before responding. The challenges, risks and beneﬁts outlined

earlier should persuade companies that delaying their response could well be a serious

error – not least because the demands for a broader information set involves not just

the way information is reported, but its reliability and the quality of the processes and

controls supporting it.

Set out below are 10 key steps that companies may practically undertake to

successfully respond to these demands while avoiding the pitfalls.

Adopt the right mindset

The ﬁrst step lies in adopting what we have

termed a ‘communication mindset’ – one

that is quite distinct from the compliance-

based approach usually taken with traditional

ﬁnancial reporting.

The communication mindset has three major

components. It involves seeking out, ensuring

there is sufﬁcient comfort over the reliability of,

and reporting information that is:

seen through the eyes of the

Board of Directors

focused on matters that are important

for investors

forward-looking in its implications for

the business

•

This approach, when applied consistently

across all areas of the business, will enable

companies to produce an annual report which

fulﬁls the demand for narrative reporting.

Companies will also need to consider the

degree to which they respond to these

demands. Will they be a leader, a follower,

or simply take the middle ground? Given the

risks and beneﬁts highlighted earlier this is

not a decision which should be taken lightly.

The answer will not negate the need to follow

the steps set out below, but it will impact the

degree to which they are followed.

Obtain Board sponsorship

and buy-in

Addressing these demands needs to be

treated as a project in its own right, with

sponsorship from a member of the Board

and ownership clearly taken by the Board

or a Board sub-committee. Whoever takes

responsibility will need to oversee a planned

and transparent process.

A ﬁrst step should be to nominate an individual

with responsibility for understanding the

implications of these demands for the annual

report’s development. This individual should

then brief the Board on what the implications

are for their company.

It will also be important at this stage to identify

the relevant “information owners” who may

be required to contribute to the annual report.

Some individuals may not have contributed to

it, or worked together, before, some may have

alternative agendas. It is therefore important

that this individual should be of sufﬁcient

authority to manage the variety of inﬂuences

and personalities which may exist among the

contributors.

The breadth of information provided in the

annual report will also require a new approach

at Board level if an integrated response to

issues is to be generated. Companies will

need to access a broad range of skills and

knowledge in order to ﬁlter and challenge

every item of information, not just for its

accuracy, but also for its relevance to their

own decision-making and value creation.

At the outset, the Board should determine

whether they have the appropriate skill set,

or whether they will need to obtain it from

elsewhere (e.g. cross-functional advisory

panels or external parties).

It is critical at this stage that companies

debate and agree what it is they’re trying

to achieve, their expectations and level of

ambition for the annual report and how

transparent they wish to be. Furthermore they

need to express their views on the importance

and relevance of information, ﬁnancial and

non-ﬁnancial, up front so as to avoid wasted

time and effort.

Narrative Reporting – Preparers’ Guide

Develop a picture of possible content

Having formed a view on the level of

ambition, companies should consider

applying an objective framework, such as

Kaplan and Norton’s Balanced Scorecard

or PricewaterhouseCoopers Corporate

Reporting framework (see Exhibit 2 on page

16), as a basis for developing a broad picture

of possible content for the annual report.

However, it will need to be tailored to reﬂect

the unique dynamics of their industry and

business. A number of sources of information

internally may be applied in building this

broad picture, including the corporate risk

matrix, stakeholder surveys, monthly Board

reports, analyst presentations and corporate

responsibility report.

Having created this picture, it may be

necessary to question again whether the right

individuals are involved in the development of

the annual report.

Build a blueprint report

Having built a picture of the broad set of

information which may be included within an

annual report, the next step is to calibrate

the content by applying a strategy ﬁlter to

determine what information is critical to

assess the existing strategy and the potential

for that strategy to succeed. This ﬁltered

picture should then act as the blueprint

against which the content of the annual

report being developed should be constantly

compared and challenged.

The blueprint should not be a static tool,

but something which can be ﬂexed to

accommodate changes in companies’

circumstances and developments in the

availability of internal information.

Benchmark the blueprint

The blueprint should now be compared against

the information currently reported externally.

In performing such a comparison companies

should take into account all mediums of

communication used to report information

internally and externally, including web site,

corporate responsibility report, investor/analyst

brieﬁngs and marketing publications.

In building up a comprehensive picture of

current reporting, consideration should also

be given to assessing where companies stand

in relation to competitors, industry norms

and good practice and the extent to which

they wish to align themselves with these

benchmarks.

Give yourself a head start*

Identify the information gaps

An output from the benchmarking exercise

should be an analysis of the gaps between

current reporting, competitors and the broader

information set required for the annual report.

Some gaps may simply point to information

which is available, but not reported. Other

gaps may relate to more fundamental issues

such as data quality, or where information

is simply not produced within the existing

systems or consistently across business units.

This is considered further below.

Creating a gap analysis will be very revealing

and should provide the basis for developing

an implementation plan for both the short

and the medium term. It is critically important

to remember the development of an annual

report is an evolutionary process, not one of

immediate revolution.

Assess adequacy of supporting

systems and procedures

Once the blueprint has been developed,

an assessment of the supporting systems

and procedures should be undertaken

to determine whether they can provide

the relevant information and whether it is

sufﬁciently robust to achieve Board comfort

and publish externally. A useful ﬁrst step

is to start at the top of the organisation

and consider the scope, and nature, of the

information being presented to the Board in

routine meetings, and the degree of process,

control and assurance applied to it in its

journey up the organisation.

Where this analysis highlights shortcomings

consideration should be given to the actions

which are necessary to remedy the situation,

ranging from rethinking the Board agenda,

to establishing robust and reliable systems

and controls.

Questions which companies may like to

consider include:

Is standard group-wide information

available?

Is there sufﬁcient transparency in areas

of judgement?

Are systems in place to gather ﬁnancial and

non-ﬁnancial information?

Is both qualitative and quantitative

information available and is it sufﬁciently

developed?

Are there appropriate key performance

indicators and other measures to support all

strategic drivers and are they consistently

calculated?

What degree of segmental information

will have to be provided to make the

data meaningful?

Who is routinely challenging and

vetting the information?

•

Narrative Reporting – Preparers’ Guide

Determine the level of accuracy

and reliability

Companies must determine the level of

accuracy and reliability they wish to achieve

for the information to be included within the

annual report. This may vary depending on

the strategic importance, nature, or source of

the different information provided. In forming

a view, companies must balance the risk of

publishing valuable information, which may be

difﬁcult to obtain with complete accuracy, with

remaining silent.

Factors to consider include:

whether the data is routinely used in the

management of the business and is subject

to sufﬁcient challenge and validation

whether a greater level of assurance is

required for non-system generated

information/data (e.g. spreadsheets or

stand-alone analyses)

•

whether external sources of data can be

used and referred to, to support the overall

picture of performance

the degree to which some information

necessitates the involvement of internal

audit or independent third party assurance

In reaching a decision it will also be important

to consider the margin of error companies

are willing to accept and to what extent that

might differ depending on the nature of the

information reported.

•

Create cohesion and clarity

Narrative reporting provides a real opportunity

for companies to consider what impact it will

have on the existing structure of the annual

report. Will the historical format traditionally

used allow for the effective communication of

the company’s strategy, management activity

and performance? Or will it simply result in

excessive repetition, increased length and an

unclear story?

Two extremes which companies might

consider are:

use the traditional format of Chairman’s/CEO

statement and ﬁnancial review but wrap the

whole front end of the report under the

umbrella of an Operating and Financial

Review – or similar term.

•

radically restructure the front end of the

report around a logical framework which

helps to tell a clear and coherent story

Each has their pros and cons. We strongly

believe, however, that the report should be

personalised and that this can be achieved

without necessarily following the traditional

model. The approach taken will ultimately

depend on the culture of each company, the

depth and breadth of information available and

above all, the leadership provided by the Board.

•

Develop an implementation plan

Following steps 1 to 9, companies will be in

a position to develop a short/medium-term

implementation plan to address the gaps

identiﬁed and deliver on their overall objective

for the annual report.

For information that is currently unavailable

companies need to consider whether to seek

to obtain the information and, if so, to provide

disclosure of their intent to report on these

matters in future reporting cycles.

For information that is available, but not

sufﬁciently robust and comparable to publish,

companies must determine how they obtain the

appropriate level of comfort on the reliability

of the information. This may range from the

development of new internal controls and

processes to independent veriﬁcation.

Give yourself a head start*

Our ongoing global industry research

with more than 3,000 CFOs, investors

and analysts focuses on determining

what information is of particular value in

managing an entity (management’s view)

and assessing an entity for investment

purposes (investors view).

This research has highlighted that these two

seemingly disparate requirements can be

largely addressed using a single information

set. We have codiﬁed these ﬁndings into

the four building blocks of the Corporate

Reporting framework shown below. The ﬁrst

category of information investors need is an

analysis of the economic and competitive

landscape of the company, followed

by an articulation of the strategy and

structure required to compete within this

landscape. Next comes the competencies,

relationships and resources that will

enable the company to achieve its strategy.

Last but not least are the ﬁnancial

and non-ﬁnancial outcomes of their

corporate activity.

Here we present a generic framework,

but in reality it can be tailored to reﬂect the

ﬁndings from each of our global industry

surveys. By applying the framework,

companies will be able to address the

critical components of the narrative and

contextual information being increasingly

demanded. Its logical structure can assist

them in providing a clear link between

business objectives and strategy,

the critical components of performance

that will affect whether these strategies

succeed and shareholders’ understanding

of business risk and how value is created.

Furthermore the focus of the annual report

should be on the quality, not quantity,

of information. By placing strategy at the

heart of the annual report, companies

should identify only those risks and

resources critical to understanding its

execution and potential to succeed.

Applying a framework tailored to meet the

key information needs of investors and

management in a given industry, means

companies avoid falling into the trap of the

‘checklist’ approach to developing content,

which usually results in reporting excessive

and often unnecessary information.

Market Overview

Competitive environment

Regulatory environment

Macro environment

•

Strategy & Structure

Goals and objectives

Governance

Risk Framework

Organisational Design

•

Managing for Value

Financial assets

Physical assets

Customers

People

Innovation

Brands and

Intellectual Assets

Supply chain

•

Performance

Economic

Operating

Environmental, Social

and Ethical

Segmental

•

Exhibit 2: The Corporate Reporting Framework

Narrative Reporting – Preparers’ Guide

The demand for narrative reporting is growing; there is no time to lose. The sooner

companies start to prepare for it, the better positioned they will be to avoid the

possible pitfalls (e.g. competitor pressure, regulatory challenges, unreliable and

incomplete data) – and reap the potential beneﬁts (e.g. competitive advantage,

improved board effectiveness, enhanced investor understanding).

The challenge should not be underestimated

Whilst companies are facing increasing

demands for narrative reporting the breadth

and depth of information provided in the

annual report cannot change over night.

The development of such a picture should

therefore be seen as a process of evolution,

not revolution.

However, the challenge to some companies

should not be underestimated. Information

may need to be captured and its reliability

challenged. Or, if information does not

exist, reporting systems may need to be

enhanced. Critically, information should not

be reported unless it is used to routinely

manage the business.

Companies should also constantly reassess

the nature and scope of what is being reported

against their blueprint, the actions of their

competitors and other external developments.

There will be an expectation that the

information provided in an annual report

will need to be consistent over time. Yet the

content cannot remain static as information

needs will shift as a result of changes in the

business, its strategy and risk proﬁle, and

the overall market environment in which it

operates.

Process of evolution, not revolution

Recognition that change will not happen overnight

Give yourself a head start*

Other Narrative reporting publications

Report Leadership

Report leadership is a multi-stakeholder group that aims to challenge established thinking on

narrative reporting. The contributors to this initiative are the Chartered Institute of Management

Accounts (CIMA), PricewaterhouseCoopers LLP, Radley Yeldar and Tomkins plc.

You can help shape how the Report Leadership project evolves by giving your comments,

actively participating, or adopting the elements that appeal to you.

Please give your feedback, register your interest, and keep up to date with developments at

www.reportleadership.com.

For more information on the implications of evolving narrative reporting practices, both internally

and externally, and to obtain copies of our publications please send an email to

info@corporatereporting.com or visit our website www.corporatereporting.com

Narrative Reporting – Preparers’ Guide

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build public trust and enhance value for clients and their stakeholders. More than 140,000 people in 149 countries across our network share their

thinking, experience and solutions to develop fresh perspectives and practical advice.

International Limited, each of which is a separate and independent legal entity. Designed by studioec4 18769 (06/07).