There has never been a more important time to put business back into accounting, but there are signs that things are getting worse, not better. Not only has the sheer weight of annual reports continued to increase, but useful information is becoming harder to excavate.

A straw poll of members of the Chartered Institute of Management Accountants (CIMA) revealed that 93 per cent believed that complexity in reporting had increased over the past five years. This trend must be reversed.

Corporate reporting goes way beyond providing prescriptive numbers determined by regulation. Good corporate reporting shows how a board manages its strategy and crucially, its risks, which in turn provides confidence about what the company is doing.

Although it is very difficult to prove its positive impact on a company's market rating directly, PricewaterhouseCoopers (PwC) produced interesting evidence of this effect several years ago. Two groups of analysts were provided with different levels of information about the same company. The first group, who received only general, non-financial narrative, offered a much lower valuation than the second group, who were given contextual narrative reporting.

For the past few years, CIMA has been involved in Report Leadership, a project with PwC and Radley Yeldar, the corporate communications specialist, to provide some best practice examples of annual reports.

My passion is narrative reporting. This style presents a vital opportunity for management to explain its strategy to investors, discuss the market environment and report how they have implemented their strategy. It sets out the context for their financial results in a way that makes the numbers more relevant and less complex and it should mirror the “top slice” of information regularly reported to boards.

The environment in which we operate is so dynamic that how information is presented may be very different from two years ago. But how is just as important as what is reported. One finance director told me that his company was outlining all their corporate governance at the front end of the narrative report and their strategy at the other, because this is what concerned shareholders most.

The pressure to converge international financial reporting standards with the United States may have started to tilt the balance towards a rules-based approach, but we strongly advocate adherence to a principles-based formula. If not, this will result in a more rigid prescriptive framework, which in turn will further complicate financial reporting. The annual report should be a means of communication, not a technical minefield. For many companies, the selection and analysis of data may lead to better management information being supplied to the board, which will be important to long-term value-creation.

If we want to restore trust in the capital markets and build genuinely sustainable businesses, now is the time to be as clear and straightforward as possible.

— Charles Tilley is chief executive of the CIMA. Its report, Complexity, Relevance and Clarity of Corporate Reporting; Views of CIMA FTSE350 Directors is launched today. www.cimaglobal.com/resources

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