New research from the CFA-UK, the membership association of financial analysts, highlights aspects of financial reporting in annual reports which investors feel need to be improved.

CFA-UK members were asked to rank the sections of annual reports by their usefulness.  ‘Financial statements (income, balance sheet, cash flow)’ are thought to be very useful by 85% of respondents (down from 88% last year), with 54% also finding ‘principal risks and uncertainties’ very useful (up from 47% in the 2015 survey).

Will Goodhart, chief executive of the CFA Society of the UK said: “Annual reports are a very significant source of information for the investment profession. It is interesting to note that respondents have this year reduced the value they assign to narrative statements, with the exception of the principal risks and uncertainties report. Given their reliance on the financial statements and the principal risks report, it continues to be a cause of concern that these sections are those considered to be in greatest need of improvement.”  

Last year, the chief executive’s review was thought to be the second most useful section of annual reports, the CFA said, with 55% of respondents rating it very useful. This year that number has dropped to 34%. The chairman’s statement and the CFO’s statements are also thought to be less valuable this year than last, with the number of respondents describing these as very useful falling from 33% to 21% and 53% to 42%, respectively, this year.

The two sections that are thought most valuable by respondents are also those considered to be in greatest need of improvement; 39% of respondents said that "Principal risks and uncertainties" was in most need of improvement, with 32% holding this view about “Financial statements (income, balance sheet, cash flow)”.

The number of respondents that think financial reports contain too much irrelevant information has fallen from 60% in 2015 to 55% in 2016, but the number that think that important information is omitted from financial reports has remained steady at 55% and the number of respondents that think that the quality of financial reporting has improved over the last 10 years has fallen from 71% in 2015 to 62% in 2016.