Regulators around the world have been looking at tightening rules that require publicly listed companies to clearly identify the strategies employed over the course of the year and their subsequent success.

One such regulator is the Australian Securities & Investments Commission (ASIC). In September, the regulator announced that it was looking to implement new guidelines for companies when reporting their annual reports, specifically in the operating and financial review sections of the statements.

ASIC Commissioner John Price said at the time that the new guidelines would allow investors to better understand how the companies were operating. He said: “While other documents, like investor presentations and analyst briefings, also provide important information for investors, these are generally presented as slide shows without supporting narrative and are not a substitute for providing information that is all in one place and accessible with the annual report.”

This initial announcement was followed in March by a full report by ASIC, titled ‘Effective Disclosure in an Operating and Financial Review’, which outlined exactly what it expected companies to include in their financial statements. According to the guidelines, the Operating and Financial Reviews (OFR) at the start of each financial report should have greater emphasis on strategies and the risks facing the businesses.

The report said: “We remain of the view that an OFR allows members to find relevant information on an entity in a single location, rather than having to piece together information from other sources, such as various past continuous disclosure announcements.”

The ASIC is trying to bring Australian companies in line with other international marketplaces, citing both the US and UK regulatory systems: “In the US, for example, a management discussion and analysis must accompany the financial report and, in the UK, a business review must be included in the directors’ report. These requirements promote similar aims of ensuring the availability of management commentary about an entity’s business and results.”

As investors get a better understanding of how publicly traded companies operate, it is hoped that capital-raising will become more efficient. ASIC Commissioner Belinda Gibson told reporters: “Just as we have reshaped prospectus’ disclosures, directors’ reports will be reshaped. [They] need to concentrate more on analysis of financial performance and future prospects.”

She added: “I hope the annual report will become a good base for building a good corporate bond market. If you have got a good annual statement about where the business is going, the top-up [for capital market disclosures] should be much less.”