Annual Reports in Europe

CFO Magazine posted an article about annual reports in Europe. An issue that has caused a lot of consternation amoung European executives is a section of proposed amendments to the Companies Act that requires executives to report on consideration of various constituencies in their decision-making processes.

The approach to governance and reporting issues in Europe is generally principles-based rather than rules-based. The U.S. follows a rules-based approach. Therefore, executives in Europe are asked to report in narrative fashion with very little guidance on issues that are difficult to measure in any meaningful way.

Because the proposed rules had been published well in advance of this year's reporting season, many companies went ahead with publication of annual reports that attempted to comply with the proposed rules requiring a narrative "Operating and Financial Review." Those proposed rules were abandoned in late November of last year, after many companies had already spent a great deal of time on the new style of reporting. For more information, visit the Companies House web site. The abandonment was a surprise in many circles, because the proposed OFR was the result of recommendations coming from a working group assembled by the Department of Trade and Industry.