Quality Narrative Reporting

7/30/2019 Quality Narrative Reporting

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Explaining the factors that determine demand and supply of houses in the UK

during the above period

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Table of Contents1. Introduction ................................................................................................................................. 22. Quality of Narrative Reporting ................................................................................................... 2

2.1 Theoretical Aspects of Quality Narrative Reporting .......................................................... 33. Scottish and Sothern Energy (SSE) Plc ...................................................................................... 4

3.1 SSE Business Model and Strategy ...................................................................................... 43.2 Scottish and Sothern Plc Quality of Narrative Reporting ................................................... 53.3 Quality of Narrative Disclosure from Top Management .................................................... 63.4 Future Strategic Planning of SSE ....................................................................................... 63.5 Capital Investment .............................................................................................................. 93.6 Governance Strategy ......................................................................................................... 10

4. Conclusion ................................................................................................................................ 12References ..................................................................................................................................... 13


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1. Introduction

The main objective of narrative reporting is to provide a mechanism, which helps a firm to create

a more attractive commercialize picture of the business, which is in line with the better

understanding of stakeholders. It generates good governance, effective and better understanding

(Pricewaterhousecoopers, 2007). For many organizations it is considered mandatory to report as

it is the legal requirements impose on the company. Companies should provide voluntary

information and should consider it as the source of communication between company and

stakeholders (Adelopo, 2011).

Using Scottish and Sothern Energy (SSE) Plc, a company listed in the FTSE 350, this report with

the help of the previous academic literature and SSE annual report provides the brief evidence

about the business model of SSE. It highlights the value creation for its employees, customers,

and investors.

One aspect which is considered important in this assignment is the level of voluntary disclosure

of corporate finance and corporate governance. SSE provides the greatest level of information to

its stakeholders all the activities of the company can be accessed from their corporate website

and annual report. The assignment also illustrates that the stakeholders have easy access to the

information regarding performance of the corporation. Third the report provides that how firm

communicate financial performance to its stakeholder. At the end this assignment evaluates how

the SSE annual report is in line with IIRC agenda for integrated reporting.

2. Quality of Narrative Reporting

The quality reporting to shareholders and stakeholders i.e. Employees, Bankers, Regulators, and

society are important activity on the part of the management of the company. User friendly

narrative reporting and financial disclosure were first introduced in the form of operating and

financial review (Yeoh, 2010). A quality reporting contains the transparency of information on

the part of the organisation. In the global economy the awareness of the reader has increased and

the expectations of the annual reports have also increased so more you disclose more the comfort

to the reader. But quality of reporting is more important than quantity (Sarkar, 2011).


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International Integrated Reporting Committee (IIRC) has introduced the integrated reporting

system where the business provided the brief explanation for the firm value. The following

figure shows that the business report should create short, medium and long term value with the

help of reporting of better and integrated information about strategy and model of the business,

operating context of the business, current and past performance highlights and how these reflect

the aim of the organisation.

Figure 1. Ingredients of Integrated Reporting

Source: KPMG (2012)

2.1 Theoretical Aspects of Quality Narrative Reporting

Most of the previous study elaborates that the disclosures theories play an important role in

explaining the narrative quality. The signaling theory specifies the reduction in information

asymmetry with the help of information disclosure. The managers convey more information to

their current and potential customers (Haniffa and Cooke, 2002). On the other hand, agency

theory plays an important role in narrative disclosure (Healy and Palepu, 2001). Firm

management discloses quality narrative information to avoid the agency problem of management

with the shareholders and with the debt holders. The quality narrative disclosure also helps to

reduce the conflicts between shareholders and debt holders.


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3. Scottish and Sothern Energy (SSE) Plc

Scottish and Sothern Energys core purpose is to deliver energy resources to people in pure,

sustainable, and reliable way. The core value which SSE contains is security, safety, efficiency,

teamwork and excellence. SSE main objective is to preserve the rights of the shareholders while

providing them with the sustainable dividends and also to ensure efficient operations and

investment in energy production and services (SSE, 2012).

3.1 SSE Business Model and Strategy

SSE business model revolves around two main operational activities. First its business model

involves in generation, distribution, transformation and supply of electricity. SSE uses turbines

to generate electricity from oil, coal, water and gas. It uses line with high voltage to transmitelectricity to different networks and use line with low voltage to transmit electricity to homes,

workplace and different premises. It also involves in retailing the electricity to its commercial

users, business and industrial concerns and households.

Figure 2. SSE Business Model for Electricity

Source: SSE (2011)

Second SSE involves in gas retailing. It involves in gas production while extracting natural gas

from North Sea fields to use off shores. Also its store gas in underground caverns for the future

use. SSE is involved in gas transformation operations using gas pipelines to deliver gas to

different premises and SSE involves in retailing gas to small industrial and business concerns

and also households.


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Figure 3. SSE Business Model for Gas

Source: SSE (2011)

3.2 Scottish and Sothern Plc Quality of Narrative Reporting

For the narrative reporting the author has used 2011 annual report and some website information.

The narrative reporting of the SSE is quite clear its technological knowhow is unique. It has

communicated most of its activities on its corporate website. Figure 4 shows the regulatory news

page in the investor centre on the website. The figure shows the full disclosure of information

and user friendly interface, where users can easily access the current and previous prospects of

the company using the check boxes and also the information given in the list.

Figure 4. Investor Section at SSE.com


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Source: SSE (2013)

3.3 Quality of Narrative Disclosure from Top Management

The quality of disclosure of the report is quite significant. The questions answer part from

chairman, Lord Smith of Kelvin, and Chief executive, Ian Merchant, is intriguing. In the report

there are same asked questions from both of them which confirm the similarities and differences

in their opinions. The questions and answers give the brief narrative analysis about the

performance of the firm.

3.4 Future Strategic Planning of SSE

Figure 5 is the brief representation of the future planning of SSE from 2012 to 2023. This gives a

good understanding to the reader about the future prospects regarding strategic point of view

about the company.

Figure 5. Key Developments

Source: SSE (2011)

SSE main focus is to preserve the rights of its shareholders. The report has significant amount of

focus on dividend growth.


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Figure 6. Dividend Growth Prospects

Source: SSE (2011)

According to the report, the strength of the company is its shareholders and it ensures that there

will be persistent growth in the inflation above dividend to attract more investment from

shareholders. It also clears the clientele effect by sending the signal to the investors who are

more into stable income on their investment and who are risk averse. SSE develops all its

financial operations and statement to satisfy the needs of its shareholders.

Figure 7 shows the key Performance indicators of SSE with comparison to four years before. It is

clear to the mind of reader how clear and interesting the performance of the company in these

five years is. This ensures the quality of reporting on the part of the company. This data is

important to the financial and accounting professional to analyse the output of the organisation.


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Figure 7. Key Financial indicators

Source: SSE (2011)

The report also provides a narrative explanation of the financial performance of the company

which is in line with the IIRC (2013) framework.


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3.5 Capital Investment

One more thing which attracts the investors how much capital assets the firm have and how they

use these assets for the development and success of the business they are dealing with.

Figure 8. Performance of Capital Assets

Source: (SSE, 2011)

SSE has distributed electricity around 3.5 million businesses, homes and offices 130,000km

underground cable and overhead lines and also it has distributed gas to 5.7 million offices,

homes and businesses vie gas mains of 75,000 km. It is estimated that the regulatory asset value

(RAV) of SSEs economically natural business is over5.36 billion. This shows that SSE is able

to take out the maximum output from its operating and capital expenditure which may attract

new investors into it (SSE, 2012).


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Figure 9. Networks Regulated Asset Value for 2011

Source: SSE (2011)

3.6 Governance Strategy

A significant important part of the report is the information about the composition and the

hierarchy of the organisation. SSE has 11 boards of directors and 7 management board members.

The hiring and leaving of board is communicated regularly on the website. Important

information is the number of non-executive directors on the board. SSE has four non-executive

directors. SSE report clearly mentions the rights and duties of the directors and the management

board. Also their independence and responsibility which is a good sign for the quality narrative

reporting.


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Figure 2. Board Structure

Source: SSE (2011)

Figure 11 provides the structure of the board which is mentioned in the report. It gives the

elaborated picture of the governance structure of SSE.

Figure 3. Remuneration Policy

Source: SSE (2011)

The report gives the brief description about the remuneration policy of the firm and also it

ensures the reliability of this information by providing further information about the

remuneration of the board. The readers of the report have significant information regarding the

remuneration policy and get well aware about the remunerations of directors. This narrative

disclosure provides a great deal of authenticity with reference to IIRC agenda.


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4. Conclusion

The quality narrative disclosure of the firm has an ability to communicate the strong foundations

on which the organisation is based on.

Figure 4. Foundation for the Integrated Report

Source: IIRC (2013)

According to the report of SSE Strategic, their objectives look strong. The report provides all the

information, which is considered important for the stakeholders. The SSE business model is

quite clear and understandable to the readers. It also creates connectivity and signals better future

prospects for the company. Assessment and identification of risk factors and the provision of a

mitigation plan are also strong points of the report. Future prospects of SSE are clear and provide

long term interest to stakeholders. The report also identifies the barriers in the way but strong

foundations for growth are also elaborated in the report. Furthermore, the report provides the

proof of inclusiveness of shareholders with answers to their question from the CEO of the

company. It also significantly documents the performance and remuneration of its governingbody. Overall, information provided by the SSE ensures reliability and its value.


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References

Abraham, S., & Cox, P. (2007). Analysing the determinants of narrative risk information in UK

FTSE 100 annual reports. The British Accounting Review, 39(3), 227248.

doi:10.1016/j.bar.2007.06.002

Adelopo, I. (2011). Voluntary disclosure practices amongst listed companies in Nigeria.

Advances in Accounting, 27(2), 338345. doi:10.1016/j.adiac.2011.08.009

Haniffa, R., & Cooke, T. (2002). Culture, corporate governance and disclosure in Malaysian

corporations.Abacus, 38(3), 317349.

Healy, P., & Palepu, K. (2001). Information asymmetry, corporate disclosure, and the capital

markets: a review of the empirical disclosure literature.Journal of Accounting and

Economics, 31(1), 405440.

IIRC. (2013). The International < IR > Framework, 151. Retrieved from www.theiirc.org

KPMG. (2012).Integrated Reporting: Performance Insight Through Better Business Reporting.

Retrieved from kpmg.com/integratedreporting

Pricewaterhousecoopers. (2007).Narrative Reporting: Give yourself a head start. Retrievedfrom www.corporatereporting.com

Sarkar, P. (2011). Disclosures in Corporate Annual ReportsA Case Study of Some Selected

Public Limited Companies in India, (October), 572578.

SSE. (2011). Scottish and Southern Energy plc Annual Report 2011. Retrieved from

http://www.sse.com/Investors/Reports_And_Results/

SSE. (2012). SSE Corporate Profile 2012. Retrieved from

http://www.sse.com/AboutUs/SSEatAGlance/

SSE. (2013). Scottish and Sothern Energy. Retrieved from www.sse.com


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Yeoh, P. (2010). Narrative reporting: the UK experience.International Journal of Law and

Management, 52(3), 211231. doi:10.1108/17542431011044652.

Quality Narrative Reporting

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