20 Questions Businesses Should Ask About Privacy

Privacy has become a significant business risk to organizations that collect, use, retain and disclose personally identifiable information about customers and employees. As a result, business owners, board members and executive management need to assess whether their handling of personally identifiable information complies with numerous privacy laws and regulations. To provide guidance, the AICPA issued a Business Brief on April 10, 2012 called 20 Questions Businesses Should Ask About Privacy. It was prepared by Nancy Cohen, CPA.CITP, CIPP, CGMA, Senior Technical Manager, AICPA Member Specialization & Credentialing.

The questions contained in that Brief were adapted from the guidance booklet, 20 Questions BusinessesShould Ask About Privacy previously published by the Canadian Institute of Chartered Accountants (CICA). They are key questions a business should ask with the aim of understanding privacy risk, implementing a privacy program, managing privacy risk and obtaining privacy assurance.

Does your Annual Report tell your whole value creation story?

According to recent KPMG guidance: “There is growing recognition that the range of issues and opportunities affecting long term business value is much broader than can be reflected in a set of current year financial measures. Annual Reports need to reflect this if they are to support investors’ capital allocation decisions effectively.”

The guidance also notes that: “Integrated Reporting provides a basis to address this by refocusing reporting around an organisation’s business model and operational priorities. The aim is to reflect the critical opportunities and challenges that affect the business - the same issues that management are dealing with on a daily basis within the organisation. Although designed to support the preparation of dedicated Integrated Reports, this approach can be applied by any company preparing an Annual Report - and indeed to other elements of corporate reporting.”

It concludes that: “For executives frustrated by apparent investor short-termism, this is an opportunity to provide a more complete picture of value, how it’s shaped by current and future events, and explain what management is doing to create and preserve it.” To learn more, read the KPMG’s guidance, Does your Annual Report tell your whole value creation story?

Top Technology Initiatives for 2012

Advances in information technology have empowered everyone to access and manage information anywhere at anytime. Although there are significant benefits that technology makes possible, such as greater flexibility, efficiency and productivity, there are also concerns with increased risks to information security. This was evident from the 2012 Top Technology Initiatives Survey of the American Institute of Certified Public Accountants (AICPA).


The survey found that securing the IT environment is this year’s top business technology priority. It also measured the confidence level in achieving technology priorities. For example, a large number of the survey respondents said they were confident that their organizations (or their clients’ organizations) have taken the actions necessary to secure the IT environment. However, respondents were the least confident with the following two aspects of IT Security: (1) Protecting all mobile devices (laptops, tablets, mobile phones, etc.) to prevent a data breach; and (2) Ensuring that data will be safe in the event of a cyber-attack or mobile device loss.

For more information, read the AICPA 2012 Top Technology Initiatives Survey Results. Also refer to the Top Technology Initiatives Archive.

Cutting Clutter from Annual Reports

Recently, there has been a drive to cut clutter from annual reports to help users find the information they need and to avoid wasted time for preparers. One impetus comes from the UK Financial Reporting Council (FRC) and the Accounting Standards Board (ASB) report, Cutting clutter: Combating clutter in annual reports, published in 2011. The report defines clutter as “immaterial disclosures that inhibit the ability to identify and understand relevant information,” and “explanatory information that remains unchanged from year to year.”

As the report explains, “Clutter makes it more difficult for users to assess a company’s progress by obscuring relevant information. Due to the time and effort involved in preparing such disclosures, clutter is also a big issue for preparers.” To encourage change, the report includes two short behavioural aids for use by teams preparing and reviewing annual reports. These highlight key questions to consider at the planning phase and during subsequent review. The FRC and the ASB have also developed three disclosure aids – covering governance, accounting policies and share-based payments – to demonstrate what these key areas of the annual report could look like without the clutter.

Integrated Reporting practices of 100 JSE-listed companies

Deloitte has released its second quarterly report on the state of Integrated Reporting in South Africa. The report is called Integrated Reporting – Navigating your way to a truly Integrated Report. It reveals that Integrated Reporting standards have been adopted by more than half of South Africa’s listed companies. Although it is now necessary for these JSE-listed companies to include a statement of compliance with the principles set out in the King Code on Governance Principles (King III) in their annual reports, many companies are still scoring surprisingly low on corporate governance matters.

The publication (which applies to all members of the C-Suite) was prepared by the Deloitte Integrated Reporting and Sustainability team. It contains the key findings of the empirical research conducted on 100 companies listed on the Johannesburg Stock Exchange. The analysis covered 7 subjects, 58 principles and 160 questions seeking to assess actual performance against good practice. The publication includes practical observations on certain topical subjects which appear to be a challenge for companies.

GRI / Deloitte XBRL Taxonomy for Sustainability Reporting

XBRL stands for eXtensible Business Reporting Language. It is one of a family of 'XML' languages and is machine readable. Use of XML language allows sharing not only the data, but also the format that is used for presenting the data. Machine readable means that computers can recognize various elements of the report and process it without manual labor. Computers can recognize the information in an XBRL document, and select, analyze, store, and exchange it with other computers. XBRL data is set out in taxonomies – data classifications that are defined by industries and organizations for their reports and communications. XBRL information can be presented automatically in a variety of ways.

The Global Reporting Initiative (GRI) Taxonomy, developed in collaboration with Deloitte, is one of the first XBRL taxonomies for sustainability reporting. It will help investors, auditors and analysts to access information in sustainability reports faster, and more simply. An XBRL taxonomy is an industry-specific categorization scheme that defines and 'tags' data in relation to its purpose, framework or outline. It enables users to uniquely tag and identify individual detailed reporting elements which can be easily shared electronically. In the case of the GRI Taxonomy, data can be tagged following the GRI Guidelines.

The new GRI Taxonomy enables organizations to tag their sustainability data in reports. This will help report users – including regulators, investors and analysts – to find and analyze sustainability information. Organizations can benefit from a well-defined structured format for collecting and disseminating sustainability information. It enables reporters, analysts, regulators and others to exchange sustainability data electronically and inform stakeholders with consistent and high quality information.

For more information, see the GRI frequently asked questions webpage. Reporters who use the GRI Taxonomy are asked to participate in the Voluntary Filing Program.

COSO Internal Control - Integrated Framework

In November 2010, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) announced a project to review and update the 1992 Internal Control - Integrated Framework. COSO’s goal in updating the framework is to increase its relevance in the increasingly complex and global business environment so that organizations worldwide can better design, implement and assess internal control.

COSO engaged PwC as author of the update. In turn, PwC received valuable input from the Advisory Council and other stakeholders. The proposed Framework retains the core definition of internal control and the five components of internal control. A significant enhancement is the expression of concepts described in the original framework as 17 principles, accompanied by related attributes. These principles and attributes should assist organizations as they apply judgment in improving performance and managing risk in changing business and operating environments.

This Framework will provide organizations with significant benefits – for example, by increasing confidence that controls mitigate risks to acceptable levels and by providing reliable information to support sound decision-making. Furthermore, because the definition of internal control and its five underlying components are not changing, the codification of the principles and attributes will not impose additional burdens or a higher threshold for designing and maintaining an effective system of internal control.

COSO is now seeking feedback comments on the proposed Internal Control - Integrated Framework. A series of questions are included in the exposure draft for consideration by participants. The comment period closes March 31, 2012.

US Congress is Keen on XBRL

As an early champion of XBRL, the American Institute of Certified Public Accountants (AICPA) has developed a number of resources to assist those who create XBRL files, as well as those who review or use XBRL. The XBRL resource page provides the history of XBRL, links to articles and guidance.

XBRL.US also has useful tools and resources. It states that: “XBRL, eXtensible Business Reporting Language, is a royalty-free, international information format designed specifically for business information, also referred to as ‘interactive data’ by the SEC. The idea behind XBRL is simple: instead of treating business information as a block of text – as in a printed paper document or a standard Internet page – it provides a unique, electronically readable tag for each individual disclosure item within business reports.”

A recent article at AICPA Insights online notes that the “US Congress is Keen on XBRL” and has introduced H.R. 3339, the Standard Data and Technology Advancement Act, or the “Standard DATA Act.” The bill aims to establish consistent requirements for the electronic content and format of data used in the administration of key human services programs. Specifically, it calls for the incorporation of existing nonproprietary standards, such as XBRL. If enacted, this bill would improve the collection and dissemination process for the federal government by standardizing data and eliminating time-consuming and error-prone manual processes.

Another bill entitled the Digital Accountability and Transparency Act, or “DATA Act,” H.R. 2146/S.1222 is also under consideration in Congress. The DATA Act calls for the use of consistent government-wide data standards for all federal spending. This bill also calls for the use of a nonproprietary data reporting standard, such as XBRL. The DATA Act is currently awaiting debate and a vote on the House floor.

Update and Current Perspectives on Integrated Business Reporting

The International Integrated Reporting Council (IIRC) has published the responses to its Discussion Paper, Towards Integrated Reporting – Communicating Value in the 21st Century. More than 215 responses submitted to the IIRC are available online, alphabetically, through the drop-down menu under the green Discussion Paper tab. The IIRC plans to publish a summary of comments by the end of March 2012.

So far, 61 companies have agreed to participate in the Pilot Program to test a new integrated reporting framework as it is developed. There are still opportunities to participate in the Program, especially for companies in North America, South America and Asia. The IIRC is also establishing an Investor Network, which will help shape integrated reporting to meet investors' needs.

Nick Ridehalgh, a senior director with KPMG, says integrated reporting is a chance for CFOs to drive change management by showing they understand the short-term, medium-term and long-term goals of the business and communicate better with the capital markets. Watch the video “Why adopt integrated reporting?” at The Australian Financial Review online.

In addition, PwC in the UK recorded a live webcast called “Business reporting in this economic environment: What to action now and consider for the year ahead” to help identify what makes good reporting. The live webcast aims to share insights on issues for management and the board, to explain what investors want to see in the annual report, and to look ahead at what is likely to change.

With market confidence shaken, there has been a positive response from investors and regulators to those companies that provide some additional, pertinent disclosures to help reassure the markets. This means demonstrating that the critical business issues, such as securing funding for borrowings, acquisitions or capital projects, are being effectively managed. It means inspiring confidence in the business model and its resilience in this economic environment. And, it means building trust in the appropriate governance of the business. The webcast looks at some of the important issues that the board and audit committees are focusing on as they sign off on annual reports.

Who’s Out There? CFOs can’t ignore social media. But what’s the ROI?

The power of social media — or, at least, its potential power — is not lost on American companies. Many are using it successfully for everything from new-product marketing to employee collaboration to innovative and very effective forms of customer service. But, most companies are struggling to turn nascent, ad hoc efforts into something resembling an actual strategy.

Clearly, social media engages enormous numbers of people: how else to explain how Starbucks got 8,006,349 Facebook “likes” (as of early December 2011) for its Frappuccino. More broadly, the numbers on social media adoption are spectacular. As of December, Facebook claimed 800 million active users worldwide, with 50% logging on every day. Twitter reported an average of 460,000 accounts created per day late last fall, with an average of 1 billion tweets per week. As of November 3, 2011, LinkedIn had 135 million members in more than 200 countries; two new users join every second.

That action is not just limited to consumers. A survey of 4,261 global executives conducted by McKinsey late last year found 72% reporting that their companies deployed at least one social technology. A November 2011 Towers Watson study of 604 global organizations found 69% planning to increase their use of social media tools over the next 12 months.

Read the full online article “Who’s Out There?” at CFO.com. For additional insight, refer to the CICA Practical Guidance Series, especially Using the Internet in Corporate Reporting: Practical Guidance for Managing Web 2.0 and Social Media. Also, see the four-part series on Using the Internet in Corporate Reporting (Part 1, Part 2, Part 3 and Part 4).

Sustainability 2.0: Using sustainability to drive business innovation and growth

Sustainability can be a game changer. It can drive innovation by introducing new design constraints that shape how key resources— energy, carbon, water, materials and waste—are used in products and processes. It can also suggest areas where innovation can pay off especially well. These five resources are ubiquitous throughout an organization’s supply chain, and the potential to boost efficiency and cut costs across these resources is significant.

Sustainability-driven innovation goes beyond designing green products and packaging solely on their inherent virtue. It entails improving business operations and processes to become more efficient, with a goal of dramatically reducing costs and waste. It’s also about insulating a business from the risk of resource price shocks and shortages. Taken together these enhancements can deliver business benefits that go far beyond the bottom line—whether it’s improving the overall carbon footprint, enhancing the brand image or engaging employees in a more profound way.

Often, there are significant opportunities for organizations to use sustainability to drive innovation and improve how they do business. A methodical analysis can highlight areas ripe for attention. Taking it a step further, that analysis may yield even greater benefits if it is extended beyond the company’s own walls through collaboration with suppliers, customers and alliance partners. Changes to each link in the supply chain can affect everything upstream and downstream and create financial benefits for everyone involved.

To reach this new frontier, leading organizations are taking a hard look inside their operations and across their supply chains, assessing where they are, prioritizing initiatives, and then formulating a broad sustainability strategy to foster product and process innovation to achieve their goals. They are also adopting metrics that more accurately measure their progress and improve their image in the marketplace. Companies that achieve this vision have the opportunity to enhance revenue and brand value, engage effectively with key stakeholders, manage risks and reduce costs.

To learn more, read the complimentary article reprint “Sustainability 2.0: Using sustainability to drive business innovation and growth” in Deloitte Review, Issue 10, January 2012. The article is also available for reading online.

Integrated Reporting: The New Big Picture

Financial statements are becoming increasingly long and complex with vast tomes of technical detail, requiring a high level of financial expertise to interpret. Complicating matters further, the world has at least two primary sets of standards under which these financial statements are prepared, although a convergence project is underway.

Beyond the financial reporting complexity issues, there is the reality that the tangible assets included in financial statements reflect a steadily diminishing component of shareholder value. Since 1983, when tangible assets represented 83% of market value, to 2009, when they represented only 19%, there has clearly been a change in business models that may not be fully reflected in traditional financial statements. Current financial statements often do not include the “true” value of inputs from, or reliance on, natural capital and other forms of capital. Conditions are ripe for new ideas.

Today, companies produce an increasing array of reports not necessarily linked to the financial statements. Governance issues, including executive pay, are sometimes reported on, as well as some of the impacts of the business on society and the environment. But, these are often reported to different audiences, in different formats and at different times. In this context, the idea of simplifying all the reporting under a consistent banner—integrated reporting—is very attractive.

Just as most of the world has moved steadily toward the adoption of International Financial Reporting Standards (IFRS), the progression toward a single, global, common framework for integrated reporting seems all but inevitable. Less clear, however, is the timing of adoption, which may be affected by a variety of economic, political, social and other factors.

To learn more, read the complimentary article reprint “Integrated Reporting: The New Big Picture” in Deloitte Review, Issue 10, January 2012 (also available online).

Making Corporate Reports Relevant - A Call to Action

The Institute of Chartered Accountants of Scotland (ICAS) has a vision of corporate reporting that is simple: a readable and concise report that tells the story of the business – summarizing the key aspects of performance and prospects – with the detailed disclosures easily available from the company’s website. There is a growing dissatisfaction with a corporate reporting process viewed by many as an exercise in regulatory compliance. Often, stakeholders consider the preliminary results announcement and related presentations to be more relevant and useful than the full annual report. The reform of corporate reporting is now a global priority.

Accordingly, the ICAS has issued a call to action. It states that: “The time for debate and discussion is running out. Quality corporate reporting is fundamental to the operation of effective global capital markets, yet financial statements are increasingly being regarded as inaccessible, incomprehensible and inconsistent with the way in which companies are operated and managed. Our Short Form Report represents a significant improvement in communication with users and offers a next step which could be implemented quickly and with relative ease.”

It also states that: “We believe that the process of producing a Short Form Report following the above principles is a useful one, giving the directors an opportunity to tell their own story. Where this could replace an Annual Review and Summary Financial Statements and ultimately form the basis of a company’s results announcement, we believe it would not be an additional burden but a significant improvement in the delivery of quality corporate reporting. ICAS will now take forward these proposals in the context of the various consultations and the development of integrated reporting, and we will continue to exert our global influence in this critical debate.”

For more information, refer to the ICAS website and read the recently-issued publication Making Corporate Reports Relevant.

FEE Factsheet on Integrated Reporting – January 2012

The FEE (Fédération des Experts-comptables Européens - Federation of European Accountants) initially published a Factsheet on Integrated Reporting in January 2011, introducing the concept as an emerging approach to reporting by organizations. Since then, debates and developments around integrated reporting have grown and will continue.

According to a recent FEE news release, “Integrated Reporting is seen as a major development in corporate reporting. FEE releases a factsheet explaining how integrated reporting differs from traditional reporting and highlighting some of the steps taken by the International Integrated Reporting Council (IIRC). Planned actions from the IIRC include publishing an analysis of the responses received on the Discussion Paper in March 2012.”

For more information, read the FEE paper “Integrated Reporting Update, January 2012.” Also, read the December 14, 2011, FEE Comment Letter to the IIRC.

Why CFOs Should Care about Integrated Reporting

On November 15, 2011, the AICPA organized a roundtable discussion in California on behalf of the International Integrated Reporting Council (IIRC). Major investors, companies and other stakeholders had the opportunity to discuss the business case for integrated reporting, as well as the challenges in communicating the benefits. Why should CFOs care about integrated reporting? Because it’s about: 1. Communicating vs. Complying; 2. Reporting the Intangibles; 3. Breaking Down Silos; and 4. Increasing Transparency.

To learn more, refer to the article “4 Reasons CFOs Should Care about Integrated Reporting” at AICPA Insights online.

AICPA Encourages IIRC to Leverage Enhanced Business Reporting Framework

In a December 14, 2011 comment letter to the International Integrated Reporting Council on its discussion paper, Towards Integrated Reporting: Communicating Value in the 21st Century, the American Institute of Certified Public Accountants (AICPA) supported an international framework for integrated reporting and encouraged the IIRC to leverage the preliminary, high level Enhanced Business Reporting Framework.

The letter states that: “We agree that there is a need for a new reporting model that brings together the currently disparate pieces and perspectives of business reporting to produce a more holistic external presentation of decision-useful information for investors and other stakeholders.” It suggests that the framework should allow organizations to find and report common framework elements most relevant to their stakeholders and that the elements should be presented so that they are comparable across companies and time periods. In order to improve transparency and provide easy access to, and analysis of, integrated reporting disclosures, the framework should allow the creation of standardized integrated reports using data standards such as eXtensible Business Reporting Language (XBRL).

According to the AICPA, the initial focus of integrated reporting should be on larger companies and the needs of their investors, which would serve as an important core foundation that can be leveraged over time to meet the needs of all companies and audiences. For more information, read the AICPA Insight blog and visit the Enhanced Business Reporting section on AICPA.org.

Canada’s Corporate Reporting Awards program celebrates 60 years of excellence

For 60 years, the CRA has been Canada’s only national program shining a spotlight on Canada’s best corporate reporting models. The program offers publicly-listed companies, and now federal and provincial Crown corporations, a unique opportunity to showcase their commitment to quality corporate reporting. Entrants demonstrate confidence in their reports by submitting them to an independent panel of judges, who are experts in their respective areas.

Fifteen Canadian publicly-listed companies and Crown corporations were recently honoured in Toronto at a gala event that marked the diamond anniversary of the Chartered Accountants of Canada’s Corporate Reporting Awards (CRA).

When the program started in 1941, the focus was the annual financial report. Over the years, it has evolved to keep pace with the capital markets and the expectations of Canadian investors for greater transparency and better information on which to base their investment decisions. Today’s CRA includes separate categories for corporate governance reporting, sustainable development reporting and electronic disclosure. The criteria have helped drive the development of best practices in all these areas, which are now regarded as essential components of the integrated corporate reporting model.