Online corporate reporting often does not take full advantage of the technology's features. Louise Ross of CIMA argues that the directors' reports and financial statements can be enhanced.

When it comes to online reporting many UK companies fail to use the features it can offer. One of the most obvious indicators of this is the relatively high proportion of businesses that produce their online annual report only as a PDF document: purely an indivisible and often difficult-to-navigate reproduction of the printed version.

Reading an annual report is should be like taking a walk through the corporate landscape. When it comes to reading an annual report online, this experience should be more like taking a trip in a helicopter - a machine capable of rising to a height where the passenger can get a clear overview of the terrain but also versatile enough to dip down and hover over particular details. There would be little point in opting for the helicopter trip if its versatility wasn't exploited. Unfortunately this is precisely what companies are doing when they don't make full use of the developments in online reporting.

Among the FTSE100 companies just over half produce HTML versions

Recent research by corporate reporting specialists, Black Sun, found that even among the FTSE100 companies (all of which publish online annual reports) just over half produce HTML versions i.e. reports written in a language that enables each item of information to be separately identified, specific topics searched for and a company's figures to be produced in different formats online or downloaded electronically. Even amongst this more progressive FTSE100 group, half of the reports are presented in a partial HTML format only. This means that relatively few companies are fully exploiting the enormous potential of an interactive annual report.

Yet research carried out collaboratively by CIMA, PricewaterhouseCoopers, Radley Yeldar and Tomkins under the banner of Report Leadership [1], found that both retail and institutional investors have an evident appetite for reports which take advantage of the web's interactive capabilities. Investors also made it clear they wanted online reports which provided more usable and more readily accessible information.

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And it's not only investors and analysts. US regulators have positively encouraged reporting in HTML in order to enable Securities and Exchange Commission analysts and others to import company information filed with the SEC into their own systems more easily. In the UK, the Companies Act 2006 has, for the first time, enabled businesses to default to online communications so that individual shareholders have to specifically request printed annual reports.

It would be a pity if here in the UK, companies saw this legislation simply as an opportunity to save money on production and distribution costs. It should be possible to make significant savings and reinvest a portion of this into more effective online reporting. Evidence from corporate report publishers, Jones and Palmer, indicated that on average only 15% of their clients' shareholders still wanted a printed annual report. These are likely to be the smaller investor, possibly those who are less web-savvy or who like to work from a printed document. But this group of investors is diminishing and in the meantime, the demand for more versatile online information grows ever greater. The bottom line is that businesses will need to keep up with developments in web communications if they are to retain their competitive edge.

Understanding how the annual report is used

This brings us to the core of the issue. To get the most out of online reporting, companies have to understand how readers intend to use the annual report - and the other documents within the financial reporting suite. No one is pretending it's the most immediate place to read price sensitive information but it tells a coherent story, for example, the business review in the directors' report is required to be a balanced and comprehensive analysis. Therefore, users can deduce the importance of information which is not included therein.

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In the same way, the financial statements within the annual report have a certain status - that of being audited - and it is clear to which information this status applies. The financial statements are also produced using a standardised or generally accepted approach and the intricacies of accounting policies are explained. For those who aren't monitoring the company closely, the annual report brings together in one place, the summary, patterns and overview they're looking for. For all these reasons, the annual report will always have a role to play as the repository of this type and status of information.

Many of the criticisms of the printed annual report have been about its increasing size. One solution would be to transfer to the website the photographs, case histories and profiles, statements from senior management and all the other information that's not required for compliance purposes. This may result in a less colourful, more technical document. But it would be one in which every word and figure is significant - and which, as a whole, would be cheaper to produce.

This type of condensed report would highlight the role of the annual report as the foundation for the rest of the online reporting information. The financial data, the ratios, the raw information, the forecasts, predictions and statements should be linked back to their mention in the annual report - and where they aren't, this makes the status of that information on the website crystal clear.

To demonstrate how versatile online reports can be, the Report Leadership project produced an HTML example for a fictitious company called Generico. The site shows a range of practical ideas to enhance the annual report experience. These include: an easy-to-use dual screen format so that supplementary information can be displayed alongside the text; a facility to bookmark pages and print them with comments embedded into them; and diagrams which enable investors to input their own data and see the potential impact.

It's clear from the good practice of some companies, that online reporting has the potential to provide a more even playing field for investor information and a valuable focal point for interested parties. The interactive tools now available allow access to deeper information, not just for analysts but for all stakeholders. Publication on the web can also become more timely as audited financial information can be published as soon as the auditors have signed it off. This in turn provides greater accessibility to corporate information and, in theory, reduces the need for analyst briefings and bespoke data updates. With these tools in place, companies won't just be able to provide a clear helicopter view but an outlook with 20:20 vision.

Louise Ross is an accounting specialist with CIMA's innovations and development department.