Corporate reporting is how companies communicate with
stakeholders as part of their accountability and stewardship obligations.
Corporate reporting needs to keep pace with the developing economic reality and
address the needs of a wider stakeholder audience. Rapid changes in the broader
business environment have increased concerns over whether corporate reporting
is continuing to fulfil its objectives.
The momentum for change toward better communication and
improved accountability is obvious from the increasing public debate in and
interest for corporate reporting. However, a common view has yet to emerge on
what the problems are, let alone how to adapt corporate reporting to achieve a
better depiction of companies’ economic position and performance.
Launching
the debate
In 2015, Accountancy Europe published the Cogito paper, The Future of Corporate Reporting – Creating the Dynamics
for Change, to stimulate an open debate among different
constituents. It puts forward a new presentation approach to corporate
reporting, the Core & More concept. It also raised the issues of the
growing audience for corporate reporting, its content, financial information
and non-financial information, policy making, innovation, and technology.
We engaged with preparers, users, auditors, regulators, academics
and policy makers from across Europe on the report’s content, and analyzed the
responses received in a follow-up paper in March 2017. Stakeholders
recognized the need for debate and welcomed the Core & More concept. The
International Accounting Standards Board even referred to Core & More in
its wider corporate reporting initiative. At the
request of stakeholders, we further clarified the Core & More concept and
how it relates to the Integrated Reporting initiative in our September 2017
paper, Core and More: An Opportunity for Smarter Corporate
Reporting.
Core
& More
Users need high-quality and concise corporate reporting.
Ultimately, Core & More reports would contain relevant
organization-specific information instead of voluminous reports with
boilerplate reporting information.
Core & More aims to establish “smarter” corporate
reporting by organizing financial and non-financial information in a more
connected, logical, and structure way. Key information likely relevant for a
wide range of stakeholders would be captured in the Core report, and
supplementary details for a more specific audience would form the More reports.
The Core & More concept encourages corporate
reporting in a “smarter” way and for a wider stakeholder audience. The concept
proposes a way of presenting and linking information. The idea is to bring the
most relevant information on the company together in a well-structured summary
(Core), from which users can then dive into more specific details according to
their needs (More). This could replace today’s practice of siloed reporting
where different standalone reports lack an overarching summary and structure.
The concept also addresses how to use technology and online reporting.
The Core pillar is envisaged as a short and concise
overarching report, covering the most relevant and material information about
the company. The Core report would contain what is deemed important to all
involved stakeholders. The detailed information captured in the More reports
would have a more specific audience. Most of the Core, together with selected
More reports or parts of them, would likely comply with the legal reporting
requirements as currently fulfilled by the annual report.
The specific content of the reports would depend on what
a company thinks its stakeholder information needs are. Although the Core &
More concept doesn’t aim to define the content of corporate reports, we have
some ideas.
·
Core: key financial and non-financial figures, prospects, and
risks
·
More: complete financial statements, detailed sustainability
information, and employee-related information
The Core & More concept raises the need to fully
cover both financial and non-financial information in corporate reporting.
However, the specific content of the reports would depend on what a company
thinks its stakeholder information needs are. In some cases, determining
materiality, relevance, and reporting principles might prove to be more
challenging when considering a wider audience. Materiality and relevance of
information is different for a consumer compared to an investor. Implementing
this principle should help cooperation between people working on financial
information and those focusing on non-financial information.
We also considered the impact that technology will have
on corporate reporting. Stakeholders already expect a move toward online
reporting. In a digital Core & More report, links and technology will help
readers find the information that matters most to them. Someone needing further
details on a topic presented in the Core report could easily access the
relevant More report thanks to a simple hyperlink. The executive summary in the
Core report could even be accompanied by a dashboard based on the user’s
preferences.
We find that the Core & More concept is consistent
with Integrated Reporting <IR>. Both concepts recommend reporting what is
crucial to the value creation of organizations. The integrated reporting
initiative has helped achieve global acceptance of value driven reporting in
recent years. Integrated reporting will help companies communicate a clear,
concise, integrated story to explain how all their resources create value. The
International Integrated Reporting Council should certainly continue to
fine-tune and develop the framework.
Experimentation in the market will be instrumental to
develop new reporting concepts, such as Core & More. However, innovation
must be fostered and encouraged. Key stakeholders, including policy makers and
regulators, should cooperate to help generate the right balance between
policies, regulation, and innovation.
A successful example of experimentation is the Financial
Reporting Lab in the UK. It brings together preparers and investors to help
market players innovate and improve corporate reporting. The Lab provides a
safe environment, collaborative approach, and opportunity to test examples to
identify best practices. It is a powerful instrument that facilitates
discussions amongst stakeholders. Finally, the Lab’s link with the UK
regulator, the Financial Reporting Council, also seems to have contributed to
its success.
A similar corporate reporting lab at the EU level could
help foster innovation in the corporate reporting arena. It would facilitate
the exchange of best practices between EU countries.
Going
forward
Our recent event brought together over 120 participants
to discuss the future of corporate reporting with key stakeholders and decision
makers (for more information, see the event summary and videos).
To ensure next steps for the Future of Corporate
Reporting, we call:
·
On companies to start experimenting with the Core & More
concept to further develop and improve it, together with other stakeholders
such as investors;
·
On governments and enforcers to encourage, or at least
accommodate, companies wishing to experiment with new reporting concepts;
·
For coordination of the non-financial information initiatives
and frameworks toward a single global principles-based reporting framework (see our September 2017 Call for Action);and
·
For consideration on who will ensure quality and discipline in
non-financial information reporting if the International Accounting Standards
Board does not feel equipped to do so, per Chair Hans Hoogervorst at our event.
Shaping this debate is an ongoing effort at Accountancy
Europe. Our next steps are:
·
Researching the impact of technology on corporate reporting,
possibly by cooperating with other actors in the reporting scene; and
·
Developing the idea of a European corporate reporting lab with
our stakeholders.
By: Hilde Blomme, Deputy CEO, Accountancy Europe and Ben Renier, Manager, Corporate and Public Sector Reporting, Accountancy Europe
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