Financial Reporting in Financial Times – Guest post by Richard O’Connor**
Financial Communication – “Driving the Brand”
First Impressions last and for Italian groups operating on the international arena their primary focus is to present themselves seamlessly to the outside world. A company’s image is something which must be consistently reflected across all communications released to a public which expects high levels of transparency. Financial communication is just another aspect of this and in fact encompasses a range of important documents sanctioned by the Board for a wide-ranging stakeholder base – from bankers and investors, clients and suppliers, overseas regulation, statutory and fiscal compliance etc..
The Annual Report is the principal communication document reporting on the Financial Year based on statutory, regulatory and accounting requirements, embracing the main operational and business aspects and enabling informed decision-making by the readers of the report. The Annual Report also includes additional material considered beneficial for various stakeholder groups and in recent years has been influenced by the concept of Integrated Reporting.
The International Integrated Reporting Council’s Framework (IIRC) was issued in December 2013 and provides companies with a starting point to drive integrated thinking and reporting. The objective of Integrated Reporting is to enhance the way organisations think, plan and report their business.
In addition, large and medium-sized multinationals widely promote Social Responsibility through the Annual Corporate Responsibility Report (CRS), mainly due to increasing consumer awareness and often driven by social media and in particular the “Millennial Generation”.
It’s clear that financial communication, reporting and brand image are intrinsically intertwined!!
Developing Corporate Identity – avoid the “Perception Gap” among an International Audience
Maintaining a strong brand image following translation into another language requires avoiding the development of a gap between how the company is seen by observers in the company’s home country and how it is seen abroad.
Ambitious Italian entrepreneurs and groups will seek funding to drive international growth through banking and other funding channels, which – depending on their chosen route – may include investor road shows in Europe and America. These meetings and contacts will principally kick off in the home country where the company has a strong track record and reputation and generally has already built up strong market positioning. Focussed international expansion, together with product development and innovative capacity, are the factors upon which strong corporate identity will be built.
However, management must first outline its strategy and undertake negotiations and meetings with key players. Most Italian multinationals will present their business case in power point presentations directly in English even to Italian audiences and these presentations are generally of a high standard as filled with industry jargon and buzz words which tends to lend well to such presentations.
No problem so far – but when investment bankers or private equity analysts in London, New York, Amsterdam, Stockholm or Paris pick up the Annual Report will the message carry over and the same perception be created as happened for the presentations made in Milan? How many reports or annual accounts will an analyst or adviser review in one month, in six months, in one year? Will these accounts have the same impact or will there be a “Perception Gap” between the guy reading these documents and the potential Italian investor listening to the business plan in his mother tongue Italian, as he follows presentations with industry jargon and key buzz words? This is often the first chance a professional investor or adviser gets to review or analyse in depth the figures, strategies, business story, projections and forecasts behind the developing corporate identity.
Symmetry of information for all stakeholders is fundamental in order to project a strong international corporate identity and enable the international audience to “buy into the project” and “get it” in terms of business plans and strategies.
To avoid this “Perception Gap” in the Annual Report and other financial documents and communications presented to Italian investors or advisers and their international counterparts, it is essential to hire professionals with a sound track record. This may be found in a small team of translators working within a specialised niche market who generally only translate into one language (for example Italian – English, French – English) and within a clearly defined scope (for example Financial, Legal & Insurance). To achieve the desired high standards translation agencies should be avoided, in particular those offering up to forty/fifty language pairs and covering every topic under the sun. On larger projects translation agencies will often make recourse to translation platforms utilising several different translators (and unproven apart from a glance at their CV’s). Translation agencies are intermediaries and are not client-orientated. The cry is often heard from scorned companies “but they said they had all mother tongue translators” – this may even have been true but what the company didn’t realise is they also needed “professional financial translators”. Half the fees paid to translation agencies go to freelance translators and the rest is wasted – thrown out the window!!!
Basically, the company has paid the same price for a patchwork end product while they could have obtained a high quality, reputation boosting, team inspiring report espousing business performance, investment strategies and corporate identity.
Two critical aspects set the professional financial translator apart – sharp and incisive business report writing and an in-depth knowledge of the underlying accounting concepts. The first aspect requires a large slice of innate talent, qualifications, dedication and a good deal of experience. The second requires a genuinely strong financial background within audit, banking or corporate advisory with significant experience of problem-solving complex accounting issues. This experience will generally range from deciphering and advising clients on group-wide and local IAS/IFRS implementation and interpretation, US GAAP and Italian GAAP reconciliations, pro-forma accounting treatment, spin-offs and mergers, due diligence and corporate finance.
Sharp and incisive business report writing is the axis around which strong communication to an international audience rotates, while in-depth accounting knowledge is the nuts and bolts of professional financial translations.
A prime example I like to use to illustrate the need for strong accounting knowledge concerns “Deferred Tax Assets” as the amounts are often consequent and their full or partial recognition is sometimes controversial and subjective – and yet I guess approximately 90% of non-professional financial translators do not have the faintest idea of what they are. Generally a non-professional financial translator will get away will translating the same line item seen on other financial statements found online, however the difficulties arise when a detailed description of the item or its movements is required in the explanatory notes section. Here a general stab in the dark will be taken that will attempt to fob off the client as it’s buried in the thick of the notes and in any case the issues are highly complex ever in the original language.
However there’s a little problem – as these amounts are often consequent and their full or partial recognition is sometimes controversial and subjective, this area will be viewed with extreme caution by analysts and advisers. Hence the need for a professional financial translator to envisage and anticipate potential problems for the intended reader’s understanding and to cross-reference with other parts of the report and at times undertake hypothetical calculations in order to back up the explanatory notes.
Finally, on a number of occasions I’ve come across the line item translated as “Tax Credits” – and then I think to myself “Wow! there’s going to be big problems here!!!”.
CFO’s and/or Investor Relator’s – reduce stress levels and have a consultant on hand
The professional financial translation firm should operate more akin to a consultant. A contract will be agreed between the parties with standard tariffs on the number of words translated and the head of the small financial translation firm – who is also responsible for all translations – will be the direct contact person for the company. In today’s fast paced digital world the head of the firm must be able to react quickly and in real-time to calls from the CFO and/or Investor Relator in order to handle urgent requests and emergencies alongside co-ordinating the normal scheduled reporting events.
The relationship between the company and the financial translation firm must run smoothly and in accordance with the expectations generated by both parties, as the translation firm head will be dealing with senior management figures who in turn report to the CEO of the company and will normally be held to tight deadlines. These expectations are generally agreed upon in the first meeting between the parties and are modified in due course in line with the company`s needs.
In practice the head of the firm will be at the end of the phone line (and/or email) to respond to doubts arising regarding highly sensitive issues such as interpreting nuanced outlook statements, complex accounting issues, restructuring events and exceptional charges, sudden board changes and so forth – these events sometimes combine for the company a mixture of sensitivity, subjectivity and urgency and hence it is extremely important for the CFO and/or Investor Relator to have a competent and able “Consultant” to accurately and effectively communicate these events in English under pressure with extreme urgency.
The professional financial translation firm will also develop corporate identity by ensuring consistency in style between the various financial communications – directors’ report, price sensitive press releases, corporate governance notices and reports – and between one period to the next, whether that be one year to the next year or one quarter to the next quarter. For companies listed on the Milan Stock Exchange we offer an “Investor Relations Package” providing a dedicated service in real time for press releases, investor relations and corporate governance documents.
In fact long-standing relationships with companies will see the Consultant role morph into a sort of semi-departmental role for the company where the professional translation firm is considered the de facto translator for all translations in the Finance/Administration Department.
The Financial Times has a slogan We Live in Financial Times. And in keeping with that adage our motto is Financial Reporting in Financial Times.
** Richard O’Connor, Chartered Accountant and CEO of Financial Reporting Ltd (www.financialreporting.it) is the author of this guest post.