Investigating presentational change in U.K. annual reports: a longitudinal perspective.

There was also a marked increase in the number of chief executives' statements (from 23% to 56%). This increase reflects the need for a more detailed narrative explanation of the results, perhaps in place of the less commonly used operating reviews as mentioned above. Another interesting change is the increase (from 10% to 51%) in companies providing a separate section dealing with corporate social responsibility issues (e.g., social, environmental, and community issues). This change reflects changing social attitudes to corporate responsibilities. Finally, although the inclusion of information for shareholders rose markedly (27% to 65%), the inclusion of details regarding the annual general meeting and financial calendar both tell markedly. This result may reflect the fact that listed companies are no longer required to send a full annual report and accounts to all shareholders and the growing use of the Internet by shareholders to access investor relations information.

The positioning of several sections relative to the financial accounts has changed since 1989. The majority location of two sections has changed over the period. In 1989, the vast majority of companies (91%) placed the list of advisors before the financial accounts; by 2004, a slight majority placed it after (53%). In the case of the auditors' report, in 1989 a slight majority (53%) placed it after the financial accounts. By 2004, the vast majority (83%) placed it before. Only four sections have been consistently placed after the financial accounts by the majority of companies (historical record, shareholder information, annual general meeting, and financial calendar). All the other 15 sections have consistently been placed before the financial accounts by the majority of companies. (10)

In addition, there has been a steady increase in the consensus positioning of individual sections either before or after the financial statements and a consequent reduction in variation of placing. This is the case for the auditors' report, the historical record, shareholders' information, the annual general meeting, and the financial calendar. Only the list of advisors has been subject to growing diversity. In 1989, the consensus location was before the financial accounts; by 2004, it appears that we are in the process of the consensus moving from a before to an after location.

Columns 6 to 9 of Table 3 report the number (and percentage) of companies that included pictures, graphs, charts, and tables in their annual reports in each generic section. In 1989, in individual companies' annual reports, the three sections in which pictures occurred most frequently were the operating review, the chief executive's statement, and the corporate social responsibility statement. By 2004, this placement had changed slightly to the operating review, the chairman's statement, and the board.

By 2004, picture use for several of the individual sections had declined, with a marginal decline across the annual report as a whole. As for graphs, in 1989 the most popular three sections were the financial review, financial highlights, and the operating review, emphasizing the financial performance of the companies. By 2004, this had changed slightly to the remuneration section, followed by the financial highlights, and then the financial review. Of interest, however, for the two sections common to the "top three" in the two sample years, graph usage had significantly declined. This was compensated by a greater use in graphs elsewhere.

There were relatively few sections that included charts in the annual reports. However, there were numerous tables with a significant rise from 1989 to 2004. Specifically, although the historical record section was always presented in a tabular form in both sample years, there was a marked rise in table use in the operating and financial review and its components (the operating review and the financial review). Comparing table use to graph use, there remains a possibility that companies have, to some degree, replaced graphical presentations with tabular presentations. Without this substitution, graph usage would have increased even more than is demonstrated by Table 3.

The final column of Table 3 reports the mean number of pages for each section, based on those companies that had the section. Figures excluding the white space surrounding each section were very similar and so are not reported here. The three sections in Table 3 that constitute the highest mean page count in 1989 are the following: operating and financial review (12.4 pages), operating review (11.5 pages), and chief executive's statement (6.9 pages). In 2004, the top three sections are the following: operating review (10.2 pages), operating and financial review (8.2 pages), and remuneration report (7.2 pages). Of the components of the operating and financial review, it is noticeable that the operating review, though less common among the sample firms, typically takes at least twice as much space as the financial review. It is also interesting to compare the page counts of 1989 with 2004. Six sections had more mean pages in 1989 than in 2004. Significantly, five of these were important accounting narratives: chairman's statement (2.8 pages vs. 2.7 pages), chief executive's statement (6.9 pages vs. 5.0 pages), operating and financial review (12.4 pages vs. 8.2 pages), operating review (11.5 pages vs. 10.2 pages), and directors' report (3.1 pages vs. 3.0 pages). These are some of the storytelling narratives of the report. There is thus a suggestion that the increase in nonfinancial accounts material is accounted for by new factual and descriptive sections such as remuneration reports and corporate governance rather than enhanced narratives about corporate performance. For example, despite the overall increase in nonfinancial accounts material, five key storytelling narratives (viz., chairman's statement, chief executive's statement, operating and financial review combined, operating review, and financial review) have in aggregate declined from 36.9 pages to 30.7 pages from 1989 to 2004. By contrast, two "agency type" disclosures on corporate governance and remuneration have increased from 0 to 10.7 pages.

Comparison of Graph Usage: 1989 and 2004

The remaining results locus on graph usage, comparing the findings of Beattie and Jones (1992b) in relation to the 1989 sample to those from the 2004 sample (15 years later). These two samples are drawn from the top 500 listed U.K. companies. Table 4 compares graph usage over time. It is clear that there has been a reinforcement of the tendency to use graphs. By 2004, graph usage had increased from 79% to 99%. For all intents and purposes, therefore, graph usage had become universal. Of interest, this increase was generally accounted for by non-key financial variable graphs. For all four key financial variable graphs, there was a decline in graph usage (ranging from 9.1% for income graphs to 16.7% for dividend per share graphs). This suggests that an increasingly broad range of measures is being emphasized through graphical presentation.

Table 5 presents a detailed analysis of graphs by topic. All graphed topics constituting more than 1% of the total for each sample are listed. The mean number of graphs per annual report rose from 5.9 in 1989 to 6.9 in 2004. Overall, the topics graphed have become more concentrated. In 1989, the top 10 topics accounted for 71.6% of all graphs; by 2004, they accounted for 79.6%. (11) However, the mix of these graphs has changed--only the four key financial variables and segmented, non-time series sales remained in the top 10 in both periods. The proportion of total graphs represented by key financial variables fell markedly from 30.7% in 1992 to 24.4% in 2004. Indeed, cash flow with 23 graphs as opposed to sales with 31 graphs is emerging as a fifth potential key financial variable.

There were several other trends. First, the number of segmental income and sales graphs more than halved over the period, representing 27.8% of all graphs in 1989 and only 11.3% of all graphs in 2004. Given the importance that financial analysts and investors place on segmental information (Hussain, 1997; Lobo, Kwon, & Ndubizu, 1998), this is a curious result that we are currently unable to explain. These changes were compensated by a marked increase in graphs of income and profitability (other than the key financial variable income before taxes) from 1.8% in 1989 to 6.2% in 2004. This result seems to indicate a focus on a broader range of income measures. There was a severe decline in many of the graphs that were present in 1989. There was, for example, a complete absence of market indices and asset portfolio graphs. In other cases, new graphs emerged. The most significant of these is the performance graph. These graphs benchmark company performance in terms of share price (specifically, total shareholder return) against an appropriate industry performance benchmark. They are now mandatory under remuneration report rules, which is the first case, in the United Kingdom, of the provision of a graph being mandatory. In addition, in 2004 product information and corporate social responsibility graphs were common, reflecting the increasing attention paid to nonfinancial information in the annual report. Indeed, there were 83 (12.8%) such graphs in 2004, but at best less than 1% in 1989.