Is the annual report heading for the bin?

But a growing number of British companies and accountants question whether a Victorian framework can serve their needs in the 21st century. Chris Swinson, president of the Institute of Chartered Accountants in England and Wales, who is heading a special commission into the future of financial reporting, says the time has come for a formal review.

Doubts about the usefulness of conventional annual and interim reports coincide with a growing demand from investors for faster and moreextensive information on companies.

quot;I think there is likely to be a lot more reporting around the edges in terms of achievement of company objectives 8211; and there is going to be a lot more experimentation, particularly in real-time reporting and more frequent reporting,quot; said Swinson, whose commission aims to publish its findings early in 2000. The traditional model may have given good service down the years but increasingly it does not provide a direct answer to the central question for investors 8212; what is a company worth?

With the service sector having overtaken manufacturing, the conventional way of valuing companies and their so-called book assets is breaking down, many accountants believe. quot;Clearly, the historical costs-tangible assets model is now very creaky,quot; said Roger Davis, head of professional affairs at PricewaterhouseCoopers.

quot;The way things are going, for the majority of companies 8212; and particularly those in the services sectorthe balance sheet is likely to come down to no more than astatement of liquidity, rather than any notion of worth.quot;

The most valuable assets of service companies are not old-fashioned smokestack factories but intangible assets such as well-trained staff, brand names and intellectual property. Accountants find these quot;softquot; assets hard to measure. But that does not stop markets attaching billion-dollar price tags to Internet firms whose tangible assets are a few desks and PCs. A 200-page consultation paper on company law published in February by Britain8217;s Department of Trade and Industry highlighted the need for modern accounts to evaluate such softer assets. The Accounting Standards Board has joined the fight, issuing a new draft of a Statement of Principles for financial reporting this month which reaffirms the need for change. quot;The dog-eared accounting concepts used in the 1980s were simply not up to the task of dealing with the transactions of the late 20th century and had to be replaced,quot; according to ASB chairman Sir David Tweedie.

Mark Goyder, director ofthe Centre for Tomorrow8217;s Company, a group sponsored by leading firms to investigate new ways of reporting, believes a head of steam is building for change.

quot;There8217;s more rigorous analysis today of what goes into making shareholder value and finding the real drivers of success,quot; he said. quot;If you follow the logic that says that the real drivers actually lie in some of these softer areas like knowledge and relationships, it is then logical to go on and question whether business is measuring these things and reporting them properly.quot; At the same time modern communications are breaking down the old constraints on communicating with shareholders and companies are under growing pressure to explain the impact of their activities on the environment and society at large.

In the past posting one report each year may have been all that was the practical as a way of companies keeping in touch with a disparate shareholder base. Today firms can post a continuous stream of information via a corporate Website.Ultimately, placing information on the Internet may do away with the need for companies to post paper reports while quot;virtual meetingsquot; could replace shareholder gatherings.

Goyder has a vision of a more accessible and relevant annual report, which his organisation sets out in a fictional document for Prototype Plc. It presents a quot;corequot; report with additional reports on financial, staff, sustainability and the supply chain. The emphasis is on stakeholders, not just shareholders, a shift which Goyder believes more firms are embracing.

quot;The companies which are picking it up are the companies like Shell who know how badly you can get your fingers burnt if you only start explaining things to people when you8217;ve got a crisis,quot; he said.