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.