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Historical development of annual reports

Among other things, annual reports have been referred to as “tree rings in the life of a company” (Piwinger 2007: 456), in the sense that the company’s development is documented in its successive reports. Not only that: they also react to commercial and technological changes of every kind - probably more directly and rapidly than many other genres. Thus a change in accounting standards will be applied in the subsequent annual report, and a commercially controversial subject has to be addressed relatively quickly insofar as it affects the company (like the Deepwater Horizon accident mentioned above). Hence, it is understandable that a type of text that a priori should strive for continuity in order to build trust has nevertheless undergone enormous changes. The majority of studies on this topic focus on the last 40 to 50 years; those that go further back, such as the studies by Ditlevsen (2002, 2012), are exceptions. If one examines annual reports from this period, three things stand out immediately: the rapid increase in scope and in the number of text sections, the increasing importance of image and typographical components, and the emergence of new channels of publication and distribution. It is hard to quantify these developments. Indeed, the literature provides highly divergent values depending on the period analysed and on the company, or at least the business sector. However, just to give an idea: Ditlevsen’s study about a Danish company starts with an annual report from 1935 consisting of 12 pages, eight sections of text and one visual element, and ends in 2007/2008 with an annual report of 128 pages, 36 text sections and 123 visual elements.

The reasons for this trend are multifaceted and to some extent overlap. It is clear that the legal and social requirements concerning the structure of annual reports have become stricter over time. This applies both to the financial statements and to other sections, whether legally prescribed or not. Corporate governance and sustainability are merely the two most obvious examples of topics added recently to annual reports. This expansionary tendency will certainly be reinforced in times of financial crisis and increasing investor protection, as well as by internationally applicable prescriptions. Similar expansion has been experienced by the purely graphical layout and, to an even greater extent, by the image section.

Many authors see sufficient justification for this development in the fact that the annual report has turned more and more “from a retrospective log into a future- orientated instrument for marketing shares and for identity or image management” (Ebert 2004: 280). More widespread shareholding and the increasing internationalisation of financial markets have meant “that the target groups of corporate communication in the area of investor relations have become more and more heterogeneous” (Schmidt 2008: 317) and that competition between companies for investors’ patronage has certainly also risen. With ever more elaborate layouts requiring the services of specialist agencies (Stanton and Stanton 2002: 479-480) and with versions in multiple languages (at least in the case of non-English-speaking companies), businesses are attempting to reach an ever more varied and international readership.

Of course, the relative decrease in the importance of the actual reporting function is also associated with the fact that, by the time of publication, the annual report is of virtually no news value to many recipients (Ebert 2002: 143). Relevant figures, especially those needed by short-term investors, are communicated significantly more quickly, normally on a quarterly cycle or even faster. This has been made possible by the use of technologies that have also fundamentally changed the way annual reports are published - and will continue to change it. Annual reports are still published in printed form, but the text is available as a PDF document on the home pages of every major company and, increasingly, in an HTML version. Hence the prerequisites have been met for a layout that exploits the Internet’s potential: future developments will surely tend towards an animated, interactive format (Piwinger 2007: 463).

 
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