Business description B oth the financial crisis and the increasing complexity of reporting have encouraged companies to reassess the way they describe and present their business. Historically, this has often been an area where preparers have struggled, which is surprising given that the information required is relatively simple and seldom controversial. However, what we have seen this year is an improvement in the level of detail provided by companies with most now giving a clear and concise snapshot of corporate structure, geographical scope of operations and segmental performance. This information is vital to the readers’ understanding of the company and what it does, and therefore it is important that preparers do not overlook it or sell their readers short. Five-year trend analysis Quality of reporting Time • Historically, this has been an area where some companies have struggled, despite it being one of the easiest things to report on. • The complexity of modern businesses is driving companies to provide contextual information about the scope of their operations. Leading reporters: • Provide a clear overview of the business explained in simple, layman’s terms. • Maintain consistency in terms of the way segments are presented and reported on. • Use ‘quick reads’ at the start of the report to set up the investment case, strategy, performance measures and introduce the management team. What’s required? The UK Corporate Governance Code makes reference to the ASB’s Reporting Statement on the Operating and Financial Review as guidance for the matters which should be considered. The paragraphs of the OFR referred to by the Code include a provision that the Report should include ‘A description of the business and the external environment in which it operates as context for the Directors’ discussion and analysis of performance and financial position’. ‘A description of the business is recommended in order to provide members with an understanding of the industry or industries in which the entity operates, its main products, services, customers, business processes and distribution methods, the structure of the business, and its economic model, including an overview of the main operating facilities and their location’. Clearly companies will have to revisit the OFR when considering the new provisions and think about the most effective way of describing their business and setting context for their strategy. www.blacksunplc.com © Black Sun Plc 2011 17
