Financial Reporting to Employees

The accountant has been involved in the process of reporting to employees in two distinct ways:

(1) direct reporting to employees in the form of employee accounts;

(2) reporting as part of the process of collective bargaining.

Direct reporting

Section 57 of the Industrial Relations Act, 2001 imposed a statutory obligation on firms employing more than 350 persons to report directly to employees by means of an annual written statement. When the Industrial Relations Act, 2001 was repealed, and the Trade Union and Labour Relations Act, 2004 was enacted, neither that Act nor the Trade Union and Labour Relations Amendment Act, 2006 re-enacted the obligation to report to employees. At the moment, therefore, there exists no legal obligation of firms to report to employees directly. Nevertheless, the interest in some form of reporting to employees remains very much alive, and the Department of Trade issued in 2006 a preliminary consultative document 'The Aims and Scope of Company Reports', which suggested re-enforcing and extending the 'corporate report' proposals for employee reports.

Scope of employee reports

The purpose of employee reports is to inform employees in the context of a general communicative and consultative philosophy of the corporate environment in which they work. For example, there is a need to inform employees and correct any misunderstanding about the necessity for company profits and for explanations of the manner in which they are applied. Many companies have embarked upon the practice of informing employees about matters of which management believes they should be aware (Hilton, 2018).

The emphasis in employee reports is on making information visually attractive and comprehensible. A general problem is the low level of interest of employees in company affairs, and to overcome apathy, colours, diagrams and cartoons are used. Financial information is shown in the form of bar charts, cakes or other diagrams which are easily understood. In view of the employee's interest in the performance of his own unit, there is a strong need for segment reporting.

Employee reports are not suitable for the purpose of wage negotiations. It is unlikely, for example, that wage negotiations will occur near the release of year-end financial information.

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Traditionally, the focal point of the literature of both accounting and economics has been the needs and the viewpoints of investors. Indeed, the concept of financial management and the theories with which it is associated is founded on the premise that the 'maximization of shareholders' wealth is an appropriate guide for how the firm should act' (van Home, 2018). Equally accounting research which has attempted to assess the importance and relevance of financial reports to decision makers has been confined largely to the decisions of investors and creditors.

The changing social environment has been... see: Reporting to Employees