This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members' names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Services Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. In Northern Ireland, BDO is represented by BDO Northern Ireland, a separate and independent member of the BDO International network. BDO LLP and BDO Northern Ireland are the Data Controllers for any personal data that they hold about you. We may disclose your information, under a confidentiality agreement, to a Data Processor (Shamrock Marketing Ltd). To correct your personal details or if you do not wish us to provide you with information that we believe may be of interest to you, please telephone (Great Britain or Belfast ). Copyright © June 14 BDO LLP. All rights reserved. Website: COMPANY ANNUAL REPORTS …TOO LONG AND TOO COMPLEX? There is an emerging undercurrent of dissatisfaction with company reporting, that is being most keenly felt amongst AIM and smaller cap companies. The fundamental purpose of annual reports is seen by many to be both a guide to financial performance and an indication of the financial position of the company. However, many, both within and outside boardrooms, believe that annual reports are losing their relevance as they become increasingly long and complex. There is a danger that the wood cannot now be seen for the trees. In September 2011, we published the results of a survey of finance directors, non-executives and fund managers, enquiring into their views on a number of reporting issues. Although the research looked at the market as a whole, the results were startling. Over 70% of non-executive directors and nearly 60% of finance directors think public company annual reports are too complex. Over 80% and 60% respectively thought that annual reports were too long.survey When asked why these concerns are particularly emerging now, a variety of responses emerge. Much criticism is laid at the door of the requirements of International Financial Reporting Standards, both in terms of what often appears to be unintuitive accounting treatments that require a high degree of explanation and often the inclusion of alternative measures to demonstrate the what if, as well as the lengthy disclosures that the underlying standards impose. Notes to the accounts now include a considerable amount of what might be termed input data which has been used in determining the outcomes reflected in the financial statements. Whilst some might find this useful, many would term it as clutter. The complexity inherent in some treatments required by IFRS is thought excessive by many directors. Areas frequently cited in this respect are: Share based payments Acquisition accounting Intangible asset valuation Financial asset and liability valuation, and Impairment. A particular feature of a number of these areas is that they involve carrying assets and liabilities at fair value. Particularly in AIM companies, a number of these assets will have no ready market and will, therefore, be valued by reference to financial models with a wide variety of potential inputs, and therefore potential outcomes. The discomfort one can have on such valuations was demonstrated on a rather larger scale when the French banks marked Greek debt to model rather than to available market values, which proved to be somewhat different. As well as the complexity and length of the financial statements, there is also concern that the narrative sections of the annual report are filled with information which is of limited value and with boilerplate rather than information that could be put more sharply and might be more relevant, relating so to the companys strategy, its business model and likely future development. It is not a purely UK issue. By way of example, the French have recently issued a discussion paper on simplifying accounting and disclosure for smaller quoted companies. One also suspects that some other countries take a less rigorous approach in enforcing some of the detail behind International Financial Reporting Standards, given our history of gold-plating international regulation. The Government and regulators are aware of disquiet in January 2012

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members' names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Services Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. In Northern Ireland, BDO is represented by BDO Northern Ireland, a separate and independent member of the BDO International network. BDO LLP and BDO Northern Ireland are the Data Controllers for any personal data that they hold about you. We may disclose your information, under a confidentiality agreement, to a Data Processor (Shamrock Marketing Ltd). To correct your personal details or if you do not wish us to provide you with information that we believe may be of interest to you, please telephone (Great Britain or Belfast ). Copyright © June 14 BDO LLP. All rights reserved. Website: this area in the UK. In 2011 the Financial Reporting Council produced a discussion paper, Cutting Clutter, which sought to focus on particular areas of disclosure and to pinpoint behaviours that caused clutter. Others, notably including the Institute of Chartered Accountants of Scotland, have come up with more concrete proposals and recently the UK Government has published a further consultation document on narrative reporting, seeking to simplify it yet make it more relevant. We would propose one quick win, pages of disclosure around accounting policies and future potential accounting standards could sit on the companies website rather than being printed in the annual report. This often follows the primary statements and turns off readers before they get to move useful footnotes. This would save numerous trees and be good for the environment! If you would like to discuss any of the issues raised in more detail please contact your usual BDO adviser or:- James Roberts