Annual reports have become far too big, says the boss of the audit watchdog Richard Moriarty.

That sentiment is shared by thousands of private investors when the hefty documents thud onto their doormat or they wade through them online.

It’s easy to see why: the length of an average public company annual report has ballooned.

A typical one is now 98,000 words, longer than JRR Tolkien’s The Hobbit, but a lot less enthralling.

‘The weight of expectation and cost around annual reports and accounts has grown over time. It's a bit like geological layers,’ says Moriarty, 52, who is chief executive of the Financial Reporting Council (FRC).

Much of the extra pagination is devoted to environmental, social and governance issues such as sustainability and gender pay equality. Though Moriarty doesn't use the word 'woke,' others might.

As a result, the cost of producing them has ballooned and they take up far too much of directors’ precious time.

‘We want [company] boards to spend their time on entrepreneurial activity,' he says.

'The more they are in a defensive posture box-ticking, the less they are thinking about innovation and growth.’

Outsized annual reports also make it harder for investors and creditors to find the important bits, he adds.

The FRC, he reveals, has been working with prominent City figures including well-known fund manager Nick Train, who has repeatedly lamented ‘reporting bloat’.

'It's a long overdue conversation, and the way I put it is: wouldn't it be good if this were a once-in-a-generation reset?’ says Moriarty.

Perhaps it is surprising to hear this from the man whose job is to keep auditors on the straight and narrow and set standards for the integrity of public markets.

City watchdogs are not known for embracing the doctrine of ‘less is more.’

But Moriarty, who was previously head of the Civil Aviation Authority, is keen to come across as more dynamic than your typical bureaucracy-loving financial regulator.

A big part of his role, as he sees it, is to create regulation that not only slaps down miscreants, but also promotes growth.

He took over the job three years ago, after the audit profession and the FRC itself had gone through a traumatic upheaval.

The years between 2016 and 2019 saw a series of high-profile corporate collapses, including Carillion, BHS and Patisserie Valerie.

The wave of failures was accompanied by harsh criticism of the respective auditors and the FRC itself.

The scandals spawned a review by City grandee Sir John Kingman.

He concluded the FRC was a ‘timid’ watchdog that resembled a ‘ramshackle house’ and was not fit for purpose.

Kingman recommended replacing it with a stronger independent body to be known as the Audit, Reporting and Governance Authority (ARGA). That, along with an audit reform bill, was shelved by the government a few months ago.

But the scandals have not gone away.

Recent fines on Big Four accountancy firms include penalties on EY for its audit of furniture group Made.com and on PwC for its work on defence firm Babcock.

PwC is also being investigated over TG Jones, formerly known as WH Smith, where there was a large accounting black hole.

Still, Moriarty argues there has been a big improvement.

‘Audit quality in the UK has come a hell of a long way since that dark period of 2018. There was a complete breakdown of public trust and confidence in the audit profession and indeed its regulation.’

‘Too often, when a company fails, people blame the auditors. Don't get me wrong, where they've failed, we will find it and we will hold them to account.

‘But simply blaming the auditor is a bit like blaming the goalkeeper when the defence has walked off the pitch.

The first line of that defence is meant to be the board.

‘The role of the FRC is to underpin trust and confidence in UK plc and support growth, but we are very clear our role is not to prevent corporate failure,' he asserts.

‘It's quite counter-cultural for a regulator to say this, but risk is not a dirty word. If we want growth, and for that growth to make its way into the pockets of people and their pension schemes, then part of the role of the FRC is to help businesses and support responsible risk-taking.’

‘If we have no risk, we have no forward movement. If you only do what you already know is going to work, you're never going to make any progress.’

He is philosophical about the shelving of the new, more muscular regulator and of the audit reform bill, saying the FRC is getting on with the job regardless.

He does, however, draw attention to one big ‘opportunity lost’ as a result: to hold large private companies like Thames Water to the same standards as stock market firms.

At present, privately-owned businesses have a much lighter regulatory regime than companies listed on the stock exchange.

‘It leaves us with some odd situations where the legislation hasn't caught up. The best way I can exemplify this is to say water Severn Trent and United Utilities [which are both quoted on the stock market] are within my perimeter, but Thames Water is not,’ he says.

This is despite the fact that the owners of Thames Water loaded it with £19 billion of debt and took out billions of pounds in dividends. The company is now in a state of near-collapse and unable to fix its crumbling network.

‘If I take another example, Sainsbury's and Tesco are within my perimeter, but Asda is not,’ he says.

‘I don't think it's right for me to speculate on Thames Water specifically.

‘But in general, what it undoubtedly means is that there are businesses in the country that Parliament, politicians and the public would regard as systemically important, yet which don't have the audit regime that their equivalent listed businesses would have.’

The government is consulting on modernising corporate reporting.

Isn’t the annual report and accounts, which is months out of date by the time it appears, an anachronism? In an age of AI, couldn’t it be replaced with a quicker and more dynamic form of online reporting?

He doesn’t offer an answer, but says it is a question that needs to be covered. ‘What is the salience of that backwards-looking, once-a-year report, when of course most businesses will be producing information throughout the year in any event?’

Another issue is whether companies should hold virtual-only annual meetings, instead of face-to-face events where shareholders can confront directors in person.

‘The law, the Companies Act, talks about the annual meeting having a place, and I don't think it's been tested in court as to whether a purely virtual meeting would meet the Companies Act's requirements.'

'But I hasten to add I am not a lawyer.'

He pooh-poohs suggestions that onerous governance and disclosure rules are driving companies off the London stock market in the direction of Wall Street.

‘What I will say is that listings on the London market are really important. They're part of our national psyche.

‘When the newsreader says "and the Footsie is up twenty points" we all feel good about it. It's deep in our national consciousness.’

‘My friends at a dinner party may not get excited about this, but I do think the audit market's going to be a fascinating place over the next five years.’

Steady on, I say to myself, silently – but even the threat of AI is not enough to dampen his energy.

‘I don't think AI will do away with the need for highly professional, highly competent auditors who bring judgement to bear.’

‘We've been here before. The audit profession survived the abacus, the adding machine, survived the spreadsheet and it will survive AI.’