The future of reporting is here today
Among the many recommendations of ICAEW’s seminal 1975 publication, The Corporate Report, one that stands out is that ‘legal reporting requirements and accounting practices’ should keep pace with ‘technological innovation and change’. Fast forward forty-two years and ICAEW’s Financial Reporting Faculty has just released its most recent paper on this subject. What’s next for corporate reporting: time to decide? recognises that while the economy and business context have changed beyond recognition over the last generation, it is time once again to think through – and decide on – the implications for corporate reporting.
This report is essentially a White Paper, a carefully argued case for reform balanced by options for change. At the IIRC we welcome such thought leadership. It sends important signals – that boundaries should be pushed further to ensure relevance and improve quality. Furthermore, the accountancy profession has a vital role in advocating for practical reforms that meet the expectations of the market participants today, as well as responding to emerging needs and opportunities. It is also essential to be responsive to the fast pace of change in business and society.
What’s next for corporate reporting: time to decide? rightly calls for decisions on key directions. By setting out a range of viewpoints, we are able to plot a path through the complex corporate reporting system. We support this discussion and believe that reporting is stronger when all the players and beneficiaries are able to input into the system we need and want in today’s world.
We make some observations with the ICAEW’s report as the starting point.
- We share the conclusion of this publication that reporting remains relevant and is useful. ‘[The annual report] continues to play a critical role in allowing investors to monitor management efficiency and make informed decisions about where to invest.’
- We believe that a shift in understanding of value creation (to the organisation and to its stakeholders) is leading to important changes in reporting. The calls to present a holistic picture of how the company creates value and the resulting impact on the capitals used are strong and wide. To put it at its most straightforward, multi-capitalist thinking is here to stay. Value created for yourself needs to take into account value created for others – a point made in the International Framework. We welcome the comment in the ICAEW report: ‘Demand for additional financial and non-financial information is driven not only by societal expectations but also by changes to business activities in the past few decades, which have seen increasing emphasis placed on innovation and knowledge.’
- The concept of integration is increasingly at the core of many movements of thinking that are seeking to ensure all relevant factors driving value are fully considered in the organisation’s strategy and business model, including wider factors affecting society and the environment. Integration of such factors into investment appraisal and decisions is surely the next investor innovation, building on the widespread appeal for ESG information.
- Experimentation is a good approach to encourage genuine innovation. This is favoured in ICAEW’s report, in which it of course cites the very good example of the FRC’s Financial Reporting Lab. It is also a model the IIRC has adopted since the beginning and has been invaluable in developing Integrated Reporting.
- Alignment is more necessary than ever to help preparers and users navigate the complicated terrain of corporate reporting. We should add that it is not just reporting that has become complex. Business is complicated and the expectations of society are changing. Initiatives that bring alignment of thinking and practice (including the Corporate Reporting Dialogue) are important to all discussions on the future of reporting.
- It is important to consider the potential for stronger linkages to financial reporting, still at the heart of corporate reporting. We welcome the words of the Chairman of the IASB on this, when he speaks about aspects of value that companies will want to communicate: ‘Users will need information about a company’s intangibles—strategy, business model or technical know-how—many of which currently are not recognised in the financial statements. Users also want to know about the external environment—competition or economic developments—in which a company operates. Generally, users seek more forward-looking information than the financial statements currently provide. These elements are often included in Integrated Reporting.’
- We can surely all agree about the impact of technology on reporting. The IIRC’s own report for CFOs, written by leaders in the technology industry through the Technology Initiative, offers additional insight. We expect that a shift to a broader view of value creation requires the application of technology to transition from the largely financial model of management practice and corporate reporting to an integrated view that supports business resilience. We should not force the pace artificially but we can champion the benefits and actively make connections that can lead to innovation.
The ICAEW report says it is ‘time to decide’ and it provides excellent insight into areas of reporting requiring decision and direction. While the report undoubtedly provides fuel to sustain the future corporate reporting engine, we should also use it to keep the current vehicle running. Integrated Reporting is founded on an agenda to meet the evolving needs for thinking and reporting on value creation – in that context, we believe the future of reporting is being created today through our global movement. We welcome this report and the opportunity it brings to ensure we are making progress through reporting.