Corporate reporting – shaping the future

Innovate before it’s too late.  That was a key message that came through loud and clear at the Fostering Innovation in Corporate Reporting event hosted by EFRAG last week.  For many, the next ten years will be a pivotal time for companies, governments and other stakeholders to tackle ever growing concerns over global environmental and social issues, such as climate change and human rights. And while corporate reporting alone cannot solve these matters, it certainly has a part to play. For example, it can provide transparency on company activities, improve accountability, and even serve as a catalyst for change. 

What are the challenges and why is change needed?

Traditional corporate reporting is currently facing a number of challenges. Some of the key challenges discussed at this week’s event echo those considered in ICAEW’s 2017 report What’s next for corporate reporting: Time to decide? In particular:

  • Users of the annual report – there is a growing demand for organisations to provide information on a wider range matters and for a broader set of stakeholders. This raises questions around the purpose of the annual report, its main intended audience, and where information should be presented. For example, should new types of information intended primarily for stakeholders other than investors be presented elsewhere, perhaps on the company website? Or should the annual report be a single, comprehensive document which reaches a wide range of stakeholders?

  • Non-financial reporting – non-financial reporting is one area that has evolved significantly in recent years. This has been matched by a growing number of guidelines, frameworks and initiatives, not to mention new regulatory requirements in this area. But what is the next step? Some believe we need a period of experimentation in order for best practice to emerge while others favour a move towards standardisation. There are also different challenges to consider compared to traditional financial reporting. For example, the number of non-financial metrics that might be relevant to different organisations even within the same sector, and concerns that the traditional concept of materiality as applied to financial statements does not translate well when applied to non-financial reporting.

  • Technology – no discussion over the future of corporate reporting is complete without consideration of technology. It is clear that technology has the potential to bring with it opportunities for companies to provide information more quickly and for users to access data in different formats. In order to take advantage of any new technologies, it will be necessary to revisit the current structure of annual reports, including how the report is broken down between different components, and between audited and non-audited information.

The debate on these challenges and the future of corporate reporting is set to continue. However, perhaps one thing that was evident from this week’s event was how this debate is moving away from more conceptual considerations about the future towards a strong desire to find practical solutions to these challenges. As Andrew Watchman, EFRAG TEG Chairman and CEO concluded: ‘Now is the right time for the right ideas.’ 

What next?

The Financial Reporting Faculty will continue to consider this topic and will produce commentary on key aspects of this debate over the course of 2019 and beyond.  The Financial Reporting Council has also embarked on an initiative this year to consider the future of corporate reporting.  Progress in  this area is important,  not least because of the matters discussed above, but also in light of the parallel and fast-moving debate currently taking place around the future of audit.

We’d be interested in any views you have in this area. Simply email us on frfac@icaew.com

Anonymous