Getting the truth is hard graph

UK companies are among the worst for using misleading graphics in annual reports, says Roger Trapp

Company accounts have long been seductive, glossy affairs. But for all the fine words and wealth of photographs of the executives, the real story of the business can often be hidden in the notes.

Consequently, while the Institute of Chartered Accountants has been collaborating with its counterparts in Scotland and Ireland and with the Stock Exchange to commend this year's winners of the awards for published reports and accounts, its research board is pointing out that UK companies are among the most likely to use graphical material to present "a distorted view of the underlying data".

The study, "Financial graphs in corporate annual reports: a review of practice in six countries", reviews the annual reports of 300 companies in the United States, Australia and various European countries. It found that graphs were extensively used in all countries, but that French companies used the most while UK organisations used the least.

The authors, Professor Michael Jones of Cardiff Business School and Dr Vivien Beattie of Stirling University, say that the design and construction of the graphs were often poor and that there was also evidence of "selectivity, measurement distortion and presentational enhancement".

Measurement distortions in the company's favour were commonplace in every country, with organisations in France, the UK and the US especially likely to take this approach.

Moreover, there was evidence, particularly from Australia, the UK and the US, that companies with "good" performance were more likely to use key performance graphs than those with "poor" performance.

Professor Jones and Dr Beattie maintain that their research shows the need to develop "a detailed set of reporting guidelines which can be applied across all countries".

Meanwhile, representatives of Kingfisher, the retail group that owns Woolworths, B&Q and Superdrug, and Hodder Headline, the fast-expanding publisher, have been rewarded for their efforts to exhibit best practice in annual financial reporting.

The awards, designed to encourage excellence in this area, have been judged for the past seven years by representatives of the investment community and the law as well as accountancy.

Nigel Macdonald, one of this year's judges, said of the winners that their reports exemplified best practice in company reporting. "Each provides a clear summary of the activities of the group and an honest insight into the issues the business is facing, and this is done in an attractive annual report which captures the reader's interest well," he said

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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