Role of CFOs in Annual Reporting

The goal of corporate reporting is to fairly disclose financial and non-financial aspects of the company. Transparent disclosures in the form of annual reports, sustainability reports, quarterly presentations and business press releases help stakeholders to make informed decisions while they plan various kinds of associations with businesses. 

It is a known fact that when it comes to financial disclosures CFOs are at the helm. However the role played by CFOs in many SME companies continue to be inadequate when it comes to communicating strategic and operational aspects of the company - consisting of products, services, people, intellectual capabilities, social and environment initiatives.

Stakeholders, especially investors, consider CFOs as the face of the company. With increasing requirements for statutory disclosures coupled with a growing appetite among investors for non-financial information, the need for CFOs to play a larger role in creating a financial-non financial communication synergy is greater than ever before. It is an imperative that CFOs must play the dual role of financial officer and strategic communicator.

The following brief focuses on the CFO’s role in preparing the annual report - the most important corporate document of the company that is available in the public domain.

In our experience as an investor communication and annual report agency, the deep involvement of midsize and small company CFOs in annual reports is just about 35-40% when it comes to communicating non-financials.

Why should a CFO be interested in annual reports ?

Apart from statutory board reports and financial statements, both of which pertain to the past, strategic communication elements in the annual report are gaining importance among investors, analysts, FIs and business media. Topics such as business and value creation model, management reviews, ESG reporting, review of strategies and key performance indicators help in analyzing the future sustainability aspects of the investment and are thereby important to investor community. CFOs must take the lead and drive this section of the annual reports to enhance the quality of financial communications. This will also help in aligning the in-person and impersonal communication of the company.

What CFOs must do to improve the annual report

There are a number of things CFOs can do to make the annual report meaningful, well-structured and as a right communication tool to the external world. Some of them are:

• Do a peer benchmarking with respect to annual reporting.
• Gain first-hand knowledge on various reporting methodologies and tools.
• Ensure that all the reviews and projections are in line with the financial model and objectives of the company.
• Not to put out unrealistic projections in the annual reports, whether financial or non-financial.
• Strive for a fact based, truthful narrative using simple language that appeals to all. Avoid technical jargons, pomp and show, and convey the basics in an honest manner.
• Establish an internal team to gather information, validate it and coordinate with the annual report agency.

Last but not the least, CFOs must also ensure that the annual report contains a detailed analysis on how financial agility is maintained in a dynamic environment, consisting of systematic and unsystematic risks.