Profile of an annual report.

• Author: Epstein, Marc J.
• Position: Corporate Reporting

Just what do shareholders want to read in your company's annual report? One survey reveals their wish list.

Are accountants translating economic events into an intelligible and understandable business language? Do accounting reports make any difference? Many people believe the accounting profession is in crisis and the major output of the financial accounting system -- the annual report -- is at the heart of the turmoil.

Since the shareholder is the primary user of the annual report, we asked shareholders what information within the typical annual report they use in making their investment decisions and what additional information would be useful to them in completing that task.

So what do these owners of the corporation think, and how have their thoughts changed over the last two decades? Our recent study reveals some trends you should heed. (The responses came from a random sample of individual corporate shareholders in all 50 United States who own at least one round lot, or 100 shares of one stock, on either the New York Stock Exchange or the American Stock Exchange.) Here goes:

* Despite what you may hear, shareholders are indeed taking a longer-term perspective on investments. They're now far less interested in speculative gains than they were in 1973, the time of the earlier survey, and are far more interested in steady income and the safety of their capital. When asked which items best describe their most important investment goals, 42.5 percent said safety of capital (up from 35.2 percent in 1973), 37.5 percent said steadyincome (up from 23.6 percent) and 18.3 percent said speculative gains (down from 31.5 percent).

* The stockbroker's influence is waning. While shareholders relied primarily on the advice of their stockbrokers for investment decision-making two decades ago, today stockbrokers rank fifth out of six potential sources of information on companies.

* Shareholders believe the annual report is more useful than it once was. While 14.1 percent found the annual report "very useful" in 1973, 21.3 percent find it so today. And 52.7 percent of shareholders now think the report is at least "of moderate use," compared to 40.7 percent in the earlier study.

* The statement of cash flows is more important to readers now, but the income statement is less important. This may be because of the increased emphasis on cash flow, rather than earnings, as a measure of performance. We conducted our earlier study before the 1988 implementation...