Narrative Reporting in the UK & Saudi Arabia


The general impression made by annual reports in one of past financial information that is presented in the form of income statements balance sheets and cash flow statements. However, this is not enough since equity capital unlike debt capital has no feasible repayment dates and cannot, therefore, be restrictively presented in graphical statement or schedule. The common practice has been to present this information in the form of a narrative within the report that explains these aspects to the investor and other stakeholders. Narrative reports are therefore a collection of forward-looking statements along with an analysis of the operating as well as the financing aspects of an enterprise compiled and presented under the umbrella of the annual report. They are a typical forecast analysis by the CEO in consultation with the Chief Financing Officer.

Narrative Reports in the UK

The International Financial Reporting Standards (IFRS) provides the legislative regime in as far as the presentation of financial information across the globe. These standards have found varying degrees of relevance in various countries. In developing countries and economies, however, they have found a wanting level of suitability. This has however not defeated their apparent relevance and importance in any such economic setup.

The UK has taken a firm stand in maintaining leadership in advocacy of the principles of corporate governance and reporting. In research conducted on the annual reports of 50 UK companies the general trend was seen to vouch for evolution in both content and mode of communication (Hoitash et al.2009, p 839-849). The level of reporting in various content areas was remarkably high. The standards of the information from these reports were also found to meet the minimum threshold. The reports were found to pass on the presentation of the financial reviews as well as the description of the objectives and strategies along with key financial indicators of growth or decline. They were on the other hand found wanting in as far as principle risk factor analysis in contractual arrangements and non-financial investments. Most companies find it hard to report on corporate social responsibility aspects as well as the risk factors due to the lack of a clear threshold of the requirements (Haniffa and Cooke 2002 pp 317-348)

In general, the UK has made a major improvement in its narrative reporting regime. It however bears the burden of engaging these issues across the continent of Europe and the broader pretext of the outside world. The UK bears the capacity to influence and model the development and enforcement of financial standards across the globe. The past decade has seen a heated and constructive debate of the relevance and needs to harmonize narrative reporting procedures as well as harmonize them with transparency directives and rules of disclosure under the justification of saving the extra costs incurred by smaller companies. Having successfully developed and implemented a narrative reporting regime the UK is the best patron to supervise similar attempts across the globe (Boesso and Kumar 2007, pp 269-296).

Narrative Reports in Saudi Arabia

Saudi Arabia has taken its place in the world as being the first sovereign state to develop and enforce its own national accounting standards. This is a significant step in the country’s corporate strategy as it goes a long way in providing an adequate business environment for the investors. This process dates back to the 19th century when the first royal decree established the Saudi Organization for Certified Public Accountants whose purpose and responsibility was to set up an accounting standard regime specifically suitable for the Saudi economy. The committee established the Saudi Organization for Certified Public Accountants which was to be adopted and enforced as the country’s legislative framework for the regulation of accounting activities and procedures (Basheikh and Page 2010 p1-6).

Like most developing countries, Saudi Arabia faced the problem of a user-friendly accounting legal regime that was receptive to the developing economy and environment. The justification for this bold move was the fact that the users of financial information and statements are the equity holders and movers of the economy who require this information in making their investment decisions.

This generalization was neither substantially correct nor wrong. The Saudi equity market was at the time still crawling and despite the organized stock exchange; the equity holders did not form the only source of financing for companies. In fact, most companies preferred individual and integrated sources of finance as opposed to equity. From a different perspective, banks were at the time the most vigilant source of finance and their lending decisions had a great impression on the economy and companies in general (Capital Market Authority 2006).

In this context, there exists a relationship between corporate voluntary disclosure and corporate governance. The trend among financial analysts has been to focus on the characteristics of the firm in evaluating the growth and development literature of a company in a given period. This has however suffered the influence of developed countries due to the effect of similar regulations and accounting standards among these developing countries (Chen and Jaggy 2000, pp 285-310).

Before 1992, there was no specific organization responsible for the preparation of and monitoring of accounting standards. The establishment of the Saudi Organization for Chartered Public Accountants led to the specialized attention to accounting standards under article 19 of the Saudi Organization for Chartered Public Accountants act. Accounting standards were held to pass ten stages pending approval through ten stages before approval ( SOCPA 2002). Despite this rigorous process the passing of accounting standards is still prone to the influence of partisan vested interests due to the political nature of the process.this has specifically been a problem in Saudi Arabia since the Saudi Organization for Chartered Public Accountants has failed to offer adequate control and regulation of the process for the benefit of all interested parties. However, despite the various research attempts and initiatives at establishing a link between politics and the setting of standards of accounting and reporting in Saudi Arabia, there has been little success. This clearly establishes the scenario in Saudi Arabia in its mid-way context.

Undeniably, the past three decades have reinforced the importance of narrative reports and their proportion in annual reports. Their relevance to investors and shareholders is increasingly receiving credence (Ettredge et al 2002, pp 357-369). It is therefore a high time that the Saudi Arabian legislative arm considers providing for more stringent enforcement measures to ensure that the narrative content of annual reports is more substantive.

Requirements in narrative reports in Saudi Arabia

Following the formulation and enforcement of the Saudi General Presentation and Disclosure Standard as well as the provisions of the capital markets listing rules, there have been certain pertinent requirements of disclosure in line with Article 9 of the Corporate Governance Regulations. These requirements are to be met by the majority of companies where applicable (Gul and Leung 2004, pp 351- 379). Certain exceptions such as extraordinary income that require the justification of internal records as a means to evaluate the presence or absence of disclosure or inapplicability of the item to the company may be omitted (Saudi Organization for Certified Public Accountants 1999). There are two main modes of disclosure: mandatory and voluntary disclosure. The items that form the mandatory disclosure index are more towards the director’s report on the annual results f the company. These include but are not limited to:

  • Previous and current year fiscal figures
  • Categorizations of assets and liabilities
  • Fixed assets net of their depreciation
  • Liabilities distinguished by their currency into short and long-term
  • Cost margins
  • Revenue and sales figures
  • Incomes and expenditure
  • Brief statements of returns in earnings equity

Voluntary disclosure on the other hand requires factors closely related to mandatory disclosure that are not obligatory to the company but are above the minimum mandatory requirements. These factors form the substance of the narrative report by the chairman and executives (Haniffa and Cooke 2002 pp 317-348). This information is analyzed and valued to provide information on the risk status of the company as well as forecast information on such a company. (Hassan et al 2006 pp 41-67), There is no requirement as to the details and extent of the information since the main object of voluntary disclosure is further disclosure or justification of mandatory disclosure (Saudi Organisation for Certified Public Accountants 2002). These factors include but are not limited to:

  • Particulars of the various constituent investments
  • Description and analysis of the Zakat value
  • Earnings per share
  • Market value changes of shares
  • Market trend analysis of the industry and sector
  • Firm forecasts and predictions
  • Economic impact on the company.

The general impression made by the narrative report is to put the investors into the picture of the company from an omnipotent perspective. The report, therefore, presents the investors with an informed decision concerning the viability of their investment. Besides the above requirements of disclosure, the report is expected to disclose a reflective analysis of the profitability of the company. The agency relationship between the chairman and the shareholders places an obligation on them to disclose to the shareholders the status of the company (Ho and Wong 2001, pp 139-156).

The report should also contain an evaluation of the gearing ratio of the company for the coming period to facilitate the calculation of future trends in the company. There exists a solid connection between the companies gearing and corporate disclosure. The better the disclosure, the lesser the debtor’s inclination towards price protecting their debts to hedge against the transfer of such debt to the shareholders ( Lee 2007 p.72).

It is also important for the report to disclose to the shareholders a liquidity analysis. This has a close relationship with investor confidence and positive goodwill for the company (Hoitash, U. et al 2009, pp 839-867). However, the general trend among companies has been to sway investors by withholding or supplying this information. Firms with high liquidity disclosed more information as opposed to those with a low liquidity ratio. The liquidity of a firm has an opposite effect on creditors and shareholders as opposed to debtors. Firms, therefore, disclose information in a manner that serves them best.


From the above discussion, it is inadvertently clear that the nature of the Saudi Arabian society is one of independence. The value attached to corporate governance and voluntary disclosure and with a specific interest in narrative reports has often escaped the attention of policymakers. In this same way, it is important to emphasize the relevance and principle importance of narrative reports to investors and shareholders. There is a need to evaluate the extent to which the current corporate governance information base supports and facilitates the investor in making an informed decision.


Basheikh A and Page M. (2010) Narrative Reports: Users’ and Preparers’ Views of Chairman’s Report and Directors’ Report in Saudi Arabia. United Kingdom: University of Portsmouth United Kingdom p 1-6

Boesso, G., and Kumar, K. (2007) “Drivers of corporate voluntary disclosure: A framework and empirical evidence from Italy and the United States”, Accounting, Auditing & Accountability Journal, 20(2): 269-296.

Capital Market Authority. (2006) Corporate Governance Regulations in the Kingdom of Saudi Arabia. Available at:

Chen, C. and Jaggi, B. (2000) “The association between independent non-executive directors, family control and financial disclosures”, Journal of Accounting and Public Policy, 19: 285-310.

Cheng, E. and Courtenay, S. (2006), “Board composition, regulatory regime and voluntary disclosure”, The International Journal of Accounting, 41(3): 262-289.

Debreceny, et al. (2002) “The determinants of Internet financial reporting”, Journal of Accounting & Public Policy, 21(4-5): 371-395.

Eng, L.L. and Mak, Y.T. (2003) “Corporate governance and voluntary disclosure” Journal of Accounting and Public Policy, 22(4): 325–345.

Ettredge et al. (2002) “Dissemination of information for investors at corporate web site”, Journal of Accounting & Public Policy, 21(4-5): 357-369.

Gul, F. and Leung, S. (2004) “Board leadership, outside directors’ expertise and voluntary corporate disclosures”, Journal of Accounting and Public Policy, 23: 351- 379.

Haniffa, R. and Cooke, T. (2002) “Culture, corporate governance and disclosure in Malaysian corporations”, Abacus, 38(3): 317-348.

Hassan, al. (2006) “The extent of financial disclosure and its determinants in an emerging capital market: the case of Egypt”, International Journal of Accounting, Auditing and Performance Evaluation, 3(1): 41-67.

Ho, S., and Wong, K.. (2001) “A study of the relationship between corporate governance structures and the extent of voluntary disclosure”, Journal of International Accounting, Auditing and Taxation, 10(2): 139-156.

Hoitash, U. et al. (2009) “Corporate governance and internal control over financial reporting: a comparison of regulatory regimes”, The Accounting Review, 84(3): 839-867.

Lee, A.T. (2007) Financial Reporting and Corporate Governance. New Jersey: Routledge

Saudi Organisation for Certified Public Accountants. (1999) Accounting Standards. Riyadh: Al-Ola Press

Saudi Organisation for Certified Public Accountants (2002). The procedures of accounting standards setting. SOCPA. Web.

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