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Sunday, 14th April 2024
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Moving corporate reporting to the next level Back  
Corporate reports contain many pieces of information that are not accessible and are not benefiting those people the reports were designed for - shareholders and investors. Kevin Egan highlights the reforms proposed in a new report, ‘Report leadership - tomorrow’s reporting today’, which calls for a clearer reporting process that brings investors the information they need.
For those who take an active interest in the reporting agenda, much has happened over the last few years. But perhaps the biggest challenges involve ensuring that reporting remains relevant and accessible to those it was originally created for – shareholders and investors. The new disclosures in Report Leadership deal with issues such as strategy and key performance indicators.

It is this fundamental challenge which gave rise to a new initiative, Report leadership - tomorrow’s reporting today, championed by PricewaterhouseCoopers, addressing corporate reporting. It looks at practical and innovative ways of communicating reporting strategy and performance to investors. PwC believes that corporate reporting should be more relevant, informative and accessible. It should provide investors with what they want without inundating them with the unnecessary detail. This means understanding that corporate reporting goes well beyond issues of measurement and accounting.

Management spends significant time aggregating and recalculating data from internal sources to construct the figures demanded by regulatory reporting. As part of the initiative, Report Leadership seeks to align external reporting more closely with management reporting, recognise the complexity of business today and provide reporting that will adapt readily to all stakeholders.

The messages
The clear message received by the Report Leadership group was that managers were spending a significant amount of time aggregating and recalculating internal data to construct the information required by regulatory reporting. This process is wasteful and ineffective - it’s like landscaping a large garden that investors then spend time unearthing so they can see the individual plants. What is really needed, therefore, is a better benchmark for corporate reporting that: aligns external reporting more closely with management reporting; recognises the complexity of business today; adapts readily to other media; and is relevant and accessible to investors.

A new template for how companies can communicate more useful information in the form of an example company, Generico, has been produced illustrating real practical ideas and sample disclosures with an aim to challenge established thinking.

Responding to investor needs, the issues covered are grouped under three main areas:

Firstly, broader information should be provided which is future-oriented and capable of assisting investors in their cash flow modelling. The information should cover critical contextual, non financial and financial information, key performance indicators, data points and key sensitivities.
Secondly, a few selective areas ought to be covered to show how rethinking disclosures and introducing new forms of presentation can enhance financial reporting.

Finally, making information accessible and engaging is vital. The report creates a cohesive picture of strategic intent and historic performance. By careful use of structure, messaging and navigation reports should be easy to read, navigate and identify what’s important.

Implementation
PricewaterhouseCoopers sets out to provide practical ideas that readers can implement immediately. Much of the reporting ideas highlighted should be the top slice of management information that’s routinely being used in board discussions. The document focuses on particularly topical areas and those widely seen as needing improvement. Its suggestions include:

• Effective communication through clear messaging and navigation
• Modelling the future through the provision of contextual information that allows investors to assess the quality and sustainability of future cash flows
• Rethinking the financials to provide greater granularity on revenues, costs segmental information, pensions and debt.

The Report Leadership group suggested over 70 improvements. A selection of these are listed below:

• Link strategy clearly to results and key performance indicators (KPIs)
• Use ‘box-outs’ in statements to highlight key figures
• Identify key messages for assessing value-creation
• Give targets for each KPI, for example, key drivers of revenue growth
• Discuss competitive and macroeconomic factors
• Set out a ‘strategy progress’ statement, providing clear links among strategic priorities, KPIs, performance and risk
• State clearly in the report where KPIs can be found
• Provide a sensitivity analysis of the main pension assumptions underpinning the calculation of liabilities and annual costs
• Include Our markets, a section setting the group’s business activities, trends, identified competitors and market forecast data
• Bring all debts together into a single analysis and analyse net debt into its various components.

Change will take many years to occur but a key short term challenge is to understand that changes to the accounting model cannot address the deficiencies of current reporting. There is a need to promote further thinking and debate around corporate reporting at this important time when the FASB and IASB are embarking on their conceptual framework project.

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