Potential advantages to BNM
Narrative reporting will enable BNM to provide information about social, economic and environmental policies. Many users are influenced by an entity's policies regarding, for example, fair trade and equivalent opportunities and the inclusion of a descriptive report on BNM progress in these areas could have a positive influence on current and potential investors.
Narrative reporting could help BNM highlight to investors the entity's reliance on the knowledge and skill of its staff. The IFRSs prohibit the recognition of human capital - but this is BNM's main revenue generating resource. Traditional analysis (ratios) of performance and efficiency are not relevant and users will need to rely on other information - information that BNM could provide in narrative reports.
Similarly the specific processes, the key customer relationships and order books are likely to influence the users' assessment of future performance and BNM has the ability to share this information with investors in a narrative report which would otherwise be absent from the financial statements because these "assets" fail the recognition criteria.
The UK's operating and financial review is a recommended addition to the financial statements and the IASB is currently developing its "Management Commentary" which is likely to help formalise the recommended content and structure of narrative reports included in financial statements.
(b) Drawbacks of voluntary disclosures
The absence of formal guidance on the content and structure of voluntary disclosures results in a lack of comparability between entities.
The nature of voluntary disclosures means that entities are free to choose which policies and practices to disclose and this may result in entities using the disclosures as a PR opportunity by reporting on only the positive aspects.
Voluntary information may not be reviewed and therefore may not be reliable. This may reduce the usefulness of the information to users.
Additional disclosures will incur time and therefore cost and any additional expense reduces the future returns available to shareholders.