Over-Full Disclosure

Even the Accountants Think Financial Documents Are Too Long


Even the Accountants Think Financial Documents Are Too Long

Photograph by Dave Long/Getty Images

Good news for fans of straightforward, declarative writing—an international accounting board wants to kill the boilerplate endemic to corporations’ annual reports, possibly even making them readable and useful for investors.

“For many companies, the size of their annual report is ballooning,” Hans Hoogervorst, chairman of the International Accounting Standards Board (IASB), said today in a speech (PDF) in Amsterdam. “The amount of useful information contained within those disclosures has not necessarily been increasing at the same rate. The risk is that annual reports become simply compliance documents, rather than instruments of communication.”

Hoogervorst said the board had gathered various experts on corporate disclosures for a meeting this past winter, which concluded that companies tend to toss every known detail into the disclosures they file with securities regulators. “No CFO has ever been sacked for producing voluminous disclosures,” he said. “Moreover, excessive disclosures can even be very handy for burying unpleasant, yet very relevant, information.”

Indeed, as anyone who has slogged through a 10-K form during proxy season well knows, keeping one’s enterprise within the regulatory requirements has left plain language far, far behind.

Even The New York Times Co. (NYT), home of some world-class writers, took 127 pages to recount the company’s events last year, with a tone that’s decidedly bureaucratic. This is how the Times’ investor relations department reports, for example, the multiyear shift of advertising from newspapers to the Internet:

“The competition for advertising revenues in various markets has intensified as a result of the continued development of digital media technologies and platforms. We have expanded and will continue to expand our digital offerings; however, the largest portion of our revenues are currently from traditional print products where advertising revenues are declining. We believe that the shift from traditional media forms to a growing number of digital media choices and changing consumer behavior have contributed to, and are likely to continue to contribute to, a decline in print advertising.”

The simpler version to anyone with even a passing familiarity with the news business would be far clearer to a Times’ 10-K reader: Most of a newspaper’s sales are still from the dead-tree product, but ad rates are suffering as advertisers switch their spending to digital—and the whole financial situation is awful, with no clear end in sight.

Further consider how PetSmart (PETM), which sells cat food and doggy day camp, felt compelled in its 2012 annual report to note that “volatility and disruption to the global capital and credit markets could adversely affect our ability to access credit and the financial soundness of our suppliers.” How many of its S&P 500 peers could say the same? Most of them? All?

The world standard for clean, sleek product design, Apple (AAPL) has a dull-as-dirt annual report (PDF) that runs more than 80 pages of single-spaced verbiage. (You will learn what an iPad and iPhone are, among other things.) Same for Google (GOOG).

Still, the tech folks are models of efficiency next to the big banks, which were blamed for wrecking the global financial system in 2008 and are now subject to stringent disclosure about their activities. JPMorgan Chase (JPM) needed 332 pages to report on its 2012, while Morgan Stanley (MS) stretched it to 310. Bank of America (BAC) took 281 pages, Wells Fargo (WFC) 250, and Goldman Sachs (GS) 241. Even an old-school grocer like Kroger (KR) (131 years old) ran through 75 pages for its annual report.

The IASB, which is based in London, will work to clarify standards on what is relevant for disclosure to investors, Hoogervorst said. The board’s rules have been adopted in more than 100 countries. Ultimately, change begins at home—Hoogervorst said the IASB had trimmed its 2012 annual report (PDF) by 25 percent, to a mere 53 pages. As he said in his speech: “Less is often more.”

Bachman is an associate editor for Businessweek.com.

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Companies Mentioned

  • NYT
    (New York Times Co/The)
    • $14.43 USD
    • -0.37
    • -2.56%
  • PETM
    (PetSmart Inc)
    • $70.45 USD
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