Just in time for annual report season, BDO LLP, a global accounting and consulting network, released a study revealing an interesting contradiction: while nearly 90 percent of fund managers said annual reports are either “the most important” or “a major element” of their investment decision-making process, only 56 percent view them as reliable indicators of performance.

It seems the annual report has become both indispensable and dubious.

The study revealed another dichotomy. While more than two-thirds of fund managers called for more assurance in the narrative section of annual reports and 70 percent would like more detailed guidance on the overall health of a business, only 43 percent of company finance executives saw the need for providing further assurance and half did not see any need for more detail on the overall health of the business. In fact, only 46 percent of finance executives polled believed annual reports play a serious role in the investment decision.

BDO concluded that companies are "underestimating the importance that the investor community places on the annual report."

This is certainly true. Despite the immediacy of disseminating up-to-date information electronically versus the lag time between writing and delivering annual reports, the reports themselves have not lost any significance. There is no other document that broadly captures the overall vision of management and mission of the company, and this is precisely what investors need and want.

James Roberts, a partner at BDO, commented, “Our research shows that while talk of the obsolescence of annual reports is ill-founded, there is a consensus emerging that they are in need of some major surgery. Action needs to be taken to address the lack of trust in annual reports, especially as their importance is still unanimously acknowledged.”

In a CNBC.com article, he goes on to say that, “investors depend on the annual report and pay serious attention to its contents. The risk is that without fuller confidence in how directors are describing their business position, investors will be hamstrung in their decision-making and any growth prompted by the capital markets could suffer.”

At no time has this been more important than in today’s market, where trust in the financial industry has eroded significantly. Negative stories about banks abound in the media.  That is why bank management should take every opportunity to tell their own story in their own words. And do so in a realistic, transparent manner, acknowledging both positives and difficulties in a forthright way.  

It is quite likely that by avoiding any elephants in the room and simply glossing over difficult issues with flowery corporate-speak in annual reports, management may be contributing significantly to the fact that nearly half of the fund managers don’t trust the information in the reports.

It is an important opportunity lost.

As we have advised our clients for years, if stakeholders believe that they are well-informed about the company and its prospects, its strengths, its challenges, its plans to overcome those difficulties, and that management has the vision to successfully lead the company, the stakeholders will be much more likely to view the company favorably as an investment and a place to bank.  

A great place to start communicating is the still-indispensable annual report.

Click here to learn how to plan and write effective annual reports.

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