Section Two – Corporate and Financial Statements
Theoretical Background Any legal entity, irrespective of its concrete business organization, has to prepare a lot of corporate and financial statements, including annual reports, interim reports, cash statements, cash flow statements, income statements, statements of compliance, statements of financial position and the like. Corporate annual reports have long been considered the pulse of corporate realities. As a specific text type corporate annual reports have been discussed at length in many publications. Recent studies have for the most part analyzed generic features [Кривоносов 2001; Дрожащих 2008], structural features [Bhatia 1995, 2010], lexical peculiarities [Rutherford 2005; Malavasi 2007], discursive strategies [Почепцов 2004; Mignini 2007] and specific fragments [Garzone 2004] of corporate annual reports. Comparative studies of corporate annual reports have also been carried out to reveal writing strategies and to explain the occurrence of a substantial linguistic variation from a cross-cultural perspective [Дрожащих 2009; De Groot 2009]. The annual report is an yearly record of a company’s financial condition. It contains a description of the company’s operations as well as its balance sheet and income statement certified by independent auditors to be accurate and true representations of the business performance of the company. The main objective of corporate annual reports is to inform the reader about the performance and health of the company and prospects for its future development. As a rule, annual reports are distributed in a printed form. Electronic versions of corporate annual reports are available on the Web for interested readers to download. The primary reader group of annual reports comprises majority shareholders, whereas the second target group includes readers such as investors, financial analysts, bankers, financial journalists, customers, corporate officers and employees. Corporate annual reports have a very peculiar structural organization. The annual report falls into many sections technically known as sub-genres, such as a CEO’s Letter to Shareholders, Performance Highlights, Directors’ Biographies, etc. Each sub-genre is a self-contained entity involving unique narrators, purposes and readers but each fragment in one way or another contributes to the constitution of the full report. For example, a typical annual report compiled by a banking institution includes the following sections: 1. CEO’s Letter to Shareholders; 2. Business Overview and Market Position; 3. Strategy for Leadership and Growth; 4. Business Organization; 5. Results by Business Area; 6. Information Systems; 7. Human Resources; 8. Office Facilities; 9. Ratings; 10. Charities and Donations; 11. Financial Statements; 12. Auditor’s Report. Each section of an annual report has a respective title. Titles are highly informative and are usually characterized by a nominal style. Subtitles are generally longer than titles and develop the content of the title so that the reader can better understand what a textual sub-section is about. Annual reports are commonly written in a positive, business-like manner. The language of annual reports is distinguished by such style markers as neutrality, high information density, objectivity and formality of expression. The vocabulary contains a considerable number of terms and terminological collocations from different areas of Business English. They are as follows: - general economic terms (e.g. economy, inflation, market); - accounting and bookkeeping terms (e.g. a balance sheet, assets, liabilities); - terms relevant for a specific business sector. For instance, in annual reports produced by banking institutions a variety of banking terms can be found (e.g. business loans, consumer loans, corporate bonds, time deposits, savings accounts, m-payments, etc.). It should be noted that many terminological collocations used in corporate annual reports are based on kernel terms borrowed from specific Natural Sciences: - Geography (e.g. investment climate – инвестиционный климат ); - Chemistry (e.g. transparency of operations – прозрачность операций, market elasticity – эластичность рынка ); - Mathematics (e.g. capital adequacy ratio – коэффициент достаточности капитала ); - Physics (e.g. market fluctuations – рыночные колебания, financial flows – финансовые потоки ). A significant part of the vocabulary is neuter, while colloquialisms and jargon items are never used. As to the parts of speech, the striking feature of annual reports is the predominance of nominal parts of speech. Cardinal numerals play a very significant role in annual report texts and occur in all sections of the texts under consideration, especially in accounting sections. As a rule, an individual engaged in compiling annual reports relies on specific terms to explain his points and seeks to illustrate them with concrete examples or financial/statistical highlights. Separate paragraphs are usually short, stick to one topic and include no more than eight to ten lines. To clarify his or her message, the writer of a corporate annual report often uses visual aids, such as tables, graphs, and charts because financial results are better introduced in charts and tables. It is important that the writers of an annual report have the rhetorical skills to compose a document that is clear and understandable because the annual report must be credible. A special study devoted to the relationship between writing quality and corporate credibility showed that the plain language in annual reports is perceived as a sign of corporate financial health [for more details, see De Groot 2008]. V.K. Bhatia claims that corporate annual reports are a combination of at least four different discourses included in the same document [Bhatia 2010]. They are as follows: 1). Accounting discourse which forms a major part of annual report texts certified by public accountants. The discourse in question is characterized by a great number of technical accounting terms and is intended exclusively for financial professionals, such as majority owners, external investors, financial analysts, auditors, tax and regulatory authorities. Elements of accounting discourse can be found in many sections of the annual report, including corporate financial statements, auditor’s report and notes to the financial statements submitted by a corporate entity. The basic financial statements to be filed by any company with regulatory authorities are a balance sheet, an income statement and a statement of cash flows. The purpose of financial statements is to communicate to users the effect of operating activities during a specified time period and the financial position at the end of the period for a specific business. Financial statements are marked by a rigid compositional structure. For example, the first structural element of the balance sheet is the heading that indicates the title of a particular company as well as the title and date of the statement:
BALANCE SHEET as of January 1, 2005 Title of a Credit Institution: Joint Stock West Siberian Bank Address: 17a, ul. Podshibyakina, Salekhard, Yamalo-Nenets Autonomous District, Tyumen Region, 629008
The heading is followed by accounting information, to be divided into 3 sections: assets, liabilities, and owner’s equity. From a linguistic point of view, all items that make up assets, liabilities and owner’s equity are special accounting terms; 2). Discourse of economics and finance can be found in such sections of the report as Business Overview and Market Position and Results by Business Area. This part of annual report texts is devoted to the discussion and analysis of facts and statistical information presented in the accounting sections of the annual report. For example: The results of UBS Private and Corporate Clients were very satisfying in 1999. Total operating income increased 5 % or CHF 288 million, to CHF 6,143 million in 1999. This improvement was primarily due to the higher margins on interest-related business, as well as the first full-year impact of the amalgamation and repricing of products from the two former banks. Furthermore, the improved quality of the loan portfolio resulted in lower credit loss expenses [Annual Report of Union Bank of Switzerland 1999]; 3). Elements of legal discourse can be generally found in those parts of the annual report which contain forward-looking typical legal statements related to future business or financial performance of the company. For example: Actual results may differ materially from the results predicted or projected, if any, and reported results should not be considered or taken as an indication of future performance. Although the projections and forward-looking statements are considered to be accurate at the time they are made available, they are provided for your information only without warranty of any kind whatsoever [this example is borrowed from Bhatia 2010]. 4). Annual reports also serve as the company’s principal public relations document and consequently contain elements of public relations discourse. Indeed, management uses annual reports as a platform for promoting corporate philosophies, strategies, and successes. As a public relations tool, annual reports became advertisements for the company. The chief value of today’s annual reports may be to promote the company image by conveying its personality and expressing confidence in its future prospects rather than to describe the company’s financial condition. Annual reports employ objective figures and evaluations to reassure the reader of the health and trustworthiness of the company. For example: Last year, a total of 51,000 micro-credits in the amount of $ 19 million were extended; In 1999, the Bank’s capital grew by 30,6% to EUR 3 479,9 million due to the successful placement of our additional share capital and profit generated in 1999 [Annual Report of Union Bank of Switzerland 1999]. In addition, the writer of an annual report makes use of various lexical items to promote the company image and leave a positive impression on the general reader. The above-mentioned lexical items fall into three basic groups: a). lexical items which describe importance and competitiveness of a relevant company (such as its size, international or global importance, attention towards its clients, innovative nature and high quality of products or services that the company offers) (e.g. first-rate, world-class, prestigious, leading; excellence, importance, robustness; compete, maintain, position/establish itself. b). lexical items stressing a useful and profitable action performed by the company or an achievement which implies positive and admirable results (e.g. profitable, successful, efficient, top-performing; improvement, efficiency, prosperity, progress; achieve, provide, attain. c). lexical items which underline positive values of the company under consideration (e.g. open-minded, secure, safe, reliable, transparent; compliance, responsibility, prudence; commit, support, ensure) [for more details see Malavasi 2007]. To make a positive impression on the reader the writer of the annual report also makes intensive use of superlative and comparative adjectives (the strongest international balance sheet, the most profitable private banking institution, the highest international standards of speed, accuracy and discretion, the very highest standards of confidentiality and trust, etc) and elements of advertising rheroric found in texts that accompany photographs (e.g. Eva and Lars summer of 1999. 4000 km, nine countries, nine currencies. One credit card.) [for more details, see Дрожащих 2008]. It is worth mentioning that the informative and promotional goals which are relevant for the annual report differ per component. For instance, some sections of the text under consideration, such as Financial Statements and Notes to the Financial Statements have a purely informative nature, while a so-called CEO’s Letter to Shareholders contain lots of promotional elements. This section is aimed at both professional and non-professional target audiences (minority owners, journalists, the general public, etc.). For example: With our new business structure in place, we now have the ability to respond quickly to changing client demands, allowing us to increase our momentum significantly. Our mix of businesses is ideal for exploiting the changing financial services landscape. We assure you of our commitment to the growth, our fellow shareholders, and we thank you, along with our staff and our clients, for your support during the past year [Annual Report of Union Bank of Switzerland 1999]. The example shows that the tone of the above CEO’s Letter to Shareholders is positive and personal, with frequent use of first and second person pronouns. Important target audiences are explicitly mentioned. The organization is portrayed as a stable and a financially sound entity which is looking ahead with optimism. V.K. Bhatia notes that the real motivation for placing elements of different discourses within a single annual report text is that “such textual proximity is likely to lend marketing and public relations discourse the same factual reliability and hence credibility that is often presupposed from the use of numerical data” [Bhatia 2010: 43]. At present, annual reports play an important impression management function and take on a magazine look with glossy paper, color photographs, and layouts. In this context, E.B. De Groot concludes that company reports have evolved from highly numerical texts into multimodal texts with many qualitative performance disclosures needed to reflect shareholders’ changing reading needs as well as changes in reporting practices and requirements [De Groot 2008]. The contemporary annual reports are characterized by a hybrid or a multimodal nature, because the textual mode is often contemplated by the visual mode [for more details see Анисимова 2003; Чернявская 2008; Jameson 2000]. It is interesting to note that the textual mode and the visual mode closely interact with each other and the structure of annual report texts is realized through typographical marks or headings, textual information is included in graphs and tables, while the narrators are manifested by means of management portraits [for more details see Jameson 2000]. Visual devices give a corporate image to both customers and shareholders and are actively involved in attaining this promotional objective. Suggested Topics for Discussion 1. What can you say about the compositional structure of annual report texts? 2. What financial statements do you know? 3. What can you say about lexical features of corporate annual reports? 4. What linguistic means are used in annual reports to promote the company’s image? 3. What can you say about corporate annual reports as multimodal texts? Translation Practice Text 1 – Management Report
Dear shareholders, customers and business associates of Zapsibcombank, In 2005, Zapsibcombank celebrated its 15th anniversary. The 15th anniversary is a clear sign of the viability of our organization. The jubilee is a good occasion both to look back on our achievements and to express appreciation to our shareholders, customers and business colleagues for the excellent co-operation and support. In 2005, the Bank aimed to maintain its faultless businessreputation in the marketplace. We continued to make heavy investments in the real sector of the Russian economy and were preoccupied with building up long-term relationships with our customers. In the year under review, the Bank managed to significantly improve its performance indicators. Our assets advanced by 41,7 %, whereas the capital base showed a 46,2 % increase. Cards issued by the Bank have proliferated and are currently estimated at 357000. Zapsibcombank ranks as the 41st leading Russian bank in terms of net assets. The stable financial position of the Bank provides us with an opportunity to cement client loyalties. At year-end 2005 our customer base totaled 602 000 corporate and personal customers. The expansion of our customer base can be primarily attributed to the development of retail banking products and services. We thoroughly understand our customers and keep a close eye on opportunities to adapt our financial and banking offerings to the needs of people residing in the Tyumen Region. Car and mortgage loan products offered by the Bank became more accessible to our personal customers and displayed good growth. In 2005, our services have been updated and enhanced in many ways. The new strong-room organized in the head office of the Bank enabled us to provide individual safekeeping services for our corporate and private customers. The Bank has launched arange of innovative card products and card-related services. To offer more equivalent services to our clients, steps were taken to put into operation new service outlets and a new additional office in the locality of Gubkinsky. We have succeeded in building up a well-balanced team of highly-qualified experienced professionals and young talents who can bring exceptional drive and commitment to our Bank. We would like to assure our esteemed shareholders, customers and business associates that we will make every endeavor to justify your trust. We extend our sincerest thanks to our shareholders, clients and business partners for the excellent co-operation and hope to maintain our mutually beneficial contacts in the years to come. Our success could not have been achieved without the hard work, expertise, and dedication of the Bank’s very capable Directors and our employees. They all deserve the highest praise and gratitude.
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