Last month, I attended a dinner organised by ICAEW at the European Parliament to debate the future of corporate reporting and explore some of the issues raised in the Financial Reporting Faculty’s influential 2017 thought leadership report, What’s next for corporate reporting: time to decide? The dinner, hosted by Theodor Dumitru Stolojan, MEP and chair of the IFRS Permanent Team of the European Parliament, was attended by an impressive mix of investors, preparers, practitioners and academics.
It was a stimulating debate, chaired by ICAEW’s Head of Financial Reporting, Audit and Assurance, Nigel Sleigh-Johnson. Much of the conversation centred around the subject of non-financial reporting, reflecting not only the recent developments in this space but also the important role it plays in explaining differences between book values and market values.
Captured below are some of key themes discussed during the evening that provide further food for thought.
Are we asking the wrong questions?
Many discussions on the future of corporate reporting begin with debate about who the rightful users of corporate reports are, but is this asking the wrong question? A common refrain heard throughout our discussion was the importance of asking what stakeholders currently use corporate reporting for, as opposed to attempting to define who the users should be. Having this information could help direct efforts to improve corporate reporting and prevent, what some see as, a scatter gun approach to corporate reporting.
One report or two?
There was a general consensus that multiple reports would be required to meet the needs of wider stakeholder groups.
It was felt that a different lens was required for different audiences and this could not be achieved with as single comprehensive report aimed at multiple stakeholder groups. There was general support for supplementary reports and websites linked to a central ‘core’ report. However, it was acknowledged that this was not without its challenges and that it would be important to firstly have the courage to continuously challenge the status quo of corporate reporting, and secondly, to not be afraid to start again if required.
Too many non-financial reporting initiatives?
There was concern around the table that the number of non-financial reporting initiatives are a heavy burden on listed companies. However, despite the volume of initiatives in this space, it was felt that non-financial reporting was still in the early stages of development and that in order to meet diverse stakeholder needs, time would be needed to allow practices to evolve. A period of 'constructive chaos' may be required in the short-term.
Is sustainability reporting meeting the needs of investors?
There was much discussion around sustainability reports.
Some commented that while sustainability reports now attract a broader audience, they were not really used by investors, who often choose to submit questionnaires to obtain the information they need. It was suggested that this might be due, in part, to concerns about the credibility of the reports but also that sustainability reports may not contain information about value drivers.
In the longer term, integrated reporting was seen by some as a solution to this issue, though not all agreed.
What more can be done?
The evening ended with the observation that we had probably raised more questions than answers. One suggestion was that the academic research community could be of real assistance in this respect. Better collaboration between regulators and academics, including possible use of pilot studies, could be helpful in obtaining more robust evidence on new corporate reporting initiatives as they emerge.
We would welcome your views on any of the themes discussed in this blog. Please send them to Alison.firstname.lastname@example.org