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?

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.

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.

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).

Academic Study Shows Investor Acceptance of XBRL Technology

A group of academics studying XBRL acceptance have determined that investors are warming up to using XBRL-enabled technology to do their research and make investment decisions. In their study of the effects of exclusive technology choice on the analysis of financial information, a trio of accounting professors found that 66% of non-professional investors chose XBRL-enabled technology to complete a financial analysis task because they perceived it would reduce the time it would take for them to complete the task.

The 34% of nonprofessional investors who chose spreadsheets over XBRL-enabled technology said they preferred it because of prior experience they had using that technology. No one in the study chose document exchange software, such as PDFs, to complete the task. These findings have implications for the technology choice literature, regulators mandating or considering mandating XBRL-based reporting, and XBRL-enabled technology adoption.

To learn more, read the June 2011 SSRN research article, XBRL-Enabled, Excel or PDF? The Effects of Exclusive Technology Choice on the Analysis of Financial Information, by Diane Janvrin of Iowa State University, Robert Pinsker of Florida Atlantic University, and Maureen Francis Mascha of University of Wisconsin-Oshkosh.

XBRL stands for eXtensible Business Reporting Language. It is one of a family of "XML" languages which is becoming a standard means of communicating information between businesses and on the Internet. XBRL is a language for the electronic communication of business and financial data which is revolutionizing business reporting around the world.  It provides major benefits in the preparation, analysis and communication of business information.  It offers cost savings, greater efficiency and improved accuracy and reliability to all those involved in supplying or using financial data.

XBRL is being developed by an international non-profit consortium of over 600 major companies, organizations and government agencies. It is an open standard, free of licence fees. It is already being put to practical use in a number of countries and implementations of XBRL are growing rapidly around the world. The idea behind XBRL is simple. Instead of treating financial information as a block of text - as in a standard Internet page or a printed document - it provides an identifying tag for each individual item of data. This is computer readable. For example, company net profit has its own unique tag. The introduction of XBRL tags enables automated processing of business information by computer software, cutting out laborious and costly processes of manual re-entry and comparison.  Computers can treat XBRL data "intelligently": they can recognize the information in a XBRL document, select it, analyse it, store it, exchange it with other computers and present it automatically in a variety of ways for users. XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits automatic checking of information.

The XBRL International website provides further information about the nature, uses and benefits of XBRL. It explains how individuals and companies can join the effort to move forward and make use of the language.

KPMG International Survey of Corporate Responsibility Reporting 2011

According to a recent KPMG survey, leading companies have combined their Corporate Social Responsibility (CSR) reporting and financial reporting, often by merging the two into the annual report. While this has been a valuable stepping stone in building an understanding of how CSR impacts the business, greater value will be gained once both sets of information are treated as part of the company’s comprehensive business performance reporting, both to internal management and external stakeholders.

Companies are also quickly evolving the method by which they communicate their CSR information to their various audiences. As more and more companies start to employ multiple vehicles for communication, the focus will be on developing and implementing a comprehensive communication strategy that enhances trust and value for the company within its different stakeholder groups.

(For more information, read the full report, KPMG International Survey of Corporate Responsibility Reporting 2011, available online.)

Amsterdam Roundtable on Integrated Reporting

An Executive Roundtable on Integrated Reporting was recently organized by the International Integrated Reporting Committee (IIRC) and Duisenberg School of Finance in Amsterdam. It was one of a series of roundtables hosted around the world to encourage the exchange of views on Integrated Reporting among leaders in business, investment, civil society, accounting and the standard setting community. The focus was on the Integrated Reporting Discussion Paper, Towards Integrated Reporting – Communicating Value in the 21st Century, which was launched on September 12, 2011.

It was noted that Integrated Reporting is about accountability regarding past financial and non-financial performance and providing insight in how a company aims to create and sustain value for shareholders and other stakeholders. Integrated Reporting only makes sense if it is part of an integrated business strategy. It should not be a data collection exercise, just for the sake of reporting. In addition, legislation has a role to play in creating a level playing field for Integrated Reporting. It should avoid being compliance based and rather be designed along the lines of a “comply or explain” approach. A Summary of the Roundtable Discussion is available online.

Integrated Reporting: Performance insight through Better Business Reporting

KPMG has issued the first edition of the publication Integrated Reporting: Performance insight through Better Business Reporting. It focuses on the challenge of providing better corporate reporting. Many who read this may not be familiar with the topic but, with the publication by the International Integrated Reporting Committee (IIRC) of its Discussion Paper, it is likely to receive more attention in the future. In the past, KPMG has looked at this as “Better Business Reporting” which captures the essence of the subject.

The first edition provides some background on Integrated Reporting with a series of short articles by some of the firms’ specialists. After a brief summary that explains what Integrated Reporting is, Michael Bray sets out the case as to why senior executives and non-executives ought to be interested.

The "cloud" and what it can do for your business

When someone talks about joining “the cloud” are you puzzled? What is it, what does it do and what does it mean for the future? Some believe the cloud is a major step in the evolution of the Internet. Others say that, without a doubt, cloud computing will play a huge role in the design, reliability and speed of corporate websites. Many are convinced that, within the next five to six years, most computing services will be delivered from the cloud. Still, for many small business enterprises, cloud computing is an abstract concept. To learn more, read the article "Still foggy on cloud computing?" in the September 2011 issue of CAmagazine online. 

The World is Changing – Reporting Must Too

The Integrated Reporting Discussion Paper, Towards Integrated Reporting – Communicating Value in the 21st Century was launched on September 12, 2011. It is available for reading online and as a PDF document. The Paper considers the rationale for Integrated Reporting, offering initial proposals for the development of an International Integrated Reporting Framework and outlining the next steps towards its creation and adoption. Its purpose is to prompt input from all those with a stake in improved reporting, including producers and users of reports. The International Integrated Reporting Committee (IIRC) welcomes general comments on the Discussion Paper, as well as responses to the questions posed. The deadline for submission is December 14, 2011.

PwC – 10 Minutes on the CEO agenda

PwC research has found that CEOs across the globe are redefining what growth looks like in a post-crisis world. Companies are reshaping their strategies and operating models—focusing on issues like talent, innovation and collaboration—to find new sources of revenue growth and competitive advantage. There are eight key questions leaders can ask— about where and how to change—to ready their businesses for the road ahead. Read the PwC March 2011 publication Growth reimagined: The eight questions every CEO should ask about getting—and staying—ahead.

Integrated reporting - Exploring the business benefit

Black Sun is one of Europe’s leading strategic corporate communications consultancies. It brings together corporate reporting, corporate responsibility communications and digital communications for clients to create powerful integrated solutions.  Offering a combination of strategic research and analysis, and ambitious creative thinking, it aims to help large UK and international organizations produce effective communications that build greater trust and confidence with their stakeholders.

Black Sun has carried out extensive research about current integrated reporting on a country-by-country basis, examining a sample of over 100 companies from 8 of the G20 countries, with representation from both developed and emerging markets. A Seminar will be held in London on August 31, 2011 to provide a summary of this international integrated reporting research and to provide an in-depth analysis of those companies that are found to be leading the way.

(View recent research reports, briefing papers and other guidance, such as the publication on Integrated Reporting – Exploring the Business Benefit at the Black Sun website.)

CICA Financial Reporting and Accounting Conference (IFRS and ASPE)

The Canadian Institute of Chartered Accountants (CICA) is presenting its annual Financial Reporting and Accounting Conference on September 26-27, 2011 (optional workshops, September 28) at the Metro Toronto Convention Centre in Toronto, Canada. This conference is Canada’s leading financial reporting and accounting event and provides an up-to-date and extensive review of the most critical current and emerging issues facing both publicly-traded and privately-held corporations in Canada. Extensive coverage of the latest developments in both International Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises (ASPE) will be delivered by prominent Canadian, US and international speakers. In-depth workshops addressing the most relevant and challenging financial reporting topics will also be available. (For more information on CICA Continuing Education products, visit the online CA Learning Centre.)

PwC Thought Leadership Highlights

Every month, PricewaterhouseCoopers (PwC) delivers a range of Thought Leadership materials that explore key business issues affecting companies around the world. This month the focus is on a variety of issues that address the following questions and more: What's the key to successful business innovation? What are the implications of the proposed FASB/IASB revenue recognition changes? How are businesses adapting to the changing needs of their talent? What's next for nuclear power? (for example, see View:Striking the innovation balance).

Also, experience the popular 10Minutes series on your iPad, now enhanced with new multimedia. With this inaugural issue, 10Minutes on the CEO Agenda, explore the eight pressing questions facing CEOs today, hear about the challenges directly from business leaders around the world. 10Minutes on the Cloud discusses how cloud computing can go beyond cost savings to offer a way to improve innovation and organizational agility, provide better customer engagement, and harness resources to focus on business imperatives.

ACCA launches online Virtual Research & Insights Conference

More than 6,000 finance professionals have signed-up for the Association of Chartered Certified Accountants (ACCA) online Research & Insights Conference which launched last week. The conference sessions can be viewed on-demand via the ACCA website until October 27, 2011.

HRH Prince of Wales delivered a live address at the conference on his involvement with the Accounting for Sustainability Project, as part of the session on integrated reporting. The online audience also heard from Professor Mervyn King, deputy chair of the International Integrated Reporting Committee (IIRC), who talked about the future scope of integrated reporting, as well as the benefits and challenges of creating a framework that brings together financial, environmental, social and governance information in a clear, concise and comparable format.

The conference covered a wide range of topics from a wealth of expert speakers, including: the new business environment: opportunities for growth; why talent management in finance matters; integrated reporting: a framework for the future; financial issues from Brussels; extended audit reporting; the eProfessional: creating the next generation of accountants; making businesses accountable; cloud computing; social media; and XBRL.

(View the ACCA conference program and ACCA Attendee Guide, then register to access the conference presentations.)

Netwatch - Smartphones are changing everything

Jim Carroll recently noted that: "I was invited to talk to 250 students for my son’s Grade 12 class. When I ran the first text-message poll, I had about 247 responses within 60 seconds. For members of this generation, texting is like oxygen; their mobile smartphone is their view into the world. They’ll look at something like text-message-based banking and think it is a great idea. ...This speaks to a huge trend: significant business model change as a result of the impact of mobile or smartphone technology. ...And the trend isn’t limited to financial services — it’s happening in virtually every industry." To learn more, read the article "Smartphones are changing everything" in the August 2011 issue of CAmagazine online.

Canadian Public Accountability Board (CPAB) Report 2011

Since its incorporation in 2003, the Canadian Public Accountability Board (CPAB) has issued seven annual public reports. The first five reports summarized inspection findings. Two years ago, CPAB changed its approach to focus on the root causes of audit deficiencies and to highlight the key recommendations that, if implemented, would have the greatest impact on improving audit quality. In the past year, CPAB has enhanced its risk assessment capabilities and now uses a more robust risk analysis process to identify high risk firms and audit engagements, improving the effectiveness of its inspections. CPAB has also increased the frequency of its inspections of firms that audit fewer than 100 reporting issuers.

According to CPAB, audit quality in Canada continues to be sound. Nonetheless, the 2010 inspections showed no significant improvement in audit quality from the previous year. The report identifies the major areas that would enhance audit quality. These include engagement supervision and review, application of professional skepticism, improving substantive analytical procedures, providing sufficient audit evidence, improving communication with audit committees, preparing significant issues and completion memos, and enhancing consultation on 25 complex, non-routine transactions.

(Read the CPAB Report on the 2010 Inspections of the Quality of Audits Conducted by Public Accounting Firms, issued in April 2011.