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.

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).

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.

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.

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.)

CICA seminar on integrated reporting features Robert Herz

Robert Herz, the recently retired chair of the US Financial Accounting Standards Board (FASB), will be in Toronto, Canada on November 23, 2011, for a breakfast seminar.

At the seminar, organized by the Canadian Institute of Chartered Accountants (CICA), Mr. Herz will review the proposals outlined in a Discussion Paper, Towards Integrated Reporting – Communicating Value in the 21st Century. The Paper was published on September 12, 2011, by the International Integrated Reporting Committee (IIRC) with a call for comments by December 14, 2011.

The IIRC was established in August 2010 by the Prince of Wales Accounting for Sustainability Project, the Global Reporting Initiative, and the International Federation of Accountants.  The IIRC brings together a cross section of representatives from the corporate, investor, accounting, securities, regulatory and standard-setting communities.

The Discussion Paper features proposals for the development of an International Integrated Reporting Framework and outlines the next steps toward its creation and adoption. The goal of integrated reporting is to provide more comprehensive and meaningful information about how an organization creates and sustains value.

(For more information, see the CICA media release on November 18, 2011.)

Announcing the Investis Online IR Rankings

Investis Online IR Rankings, a unique free feature, aims to help investor relations professionals identify companies that are international leaders in online IR communications. The initial rankings cover major international stock exchanges, including the S&P 100 index of the largest US companies, the FTSE 100 of the largest UK-listed companies, the DAX index of blue chip German companies, the Italian FTSE MIB index, and Finland’s OMXH 25. New indexes will be added in future quarterly updates to eventually cover about 800 companies, which will be reviewed twice per year.

The evaluations are conducted by Investis, a leading corporate website service provider based in London, and validated through random sampling by IR Web Report. Investis has been evaluating corporate websites for its IQ Benchmarking service since 2008. The Online IR Rankings are an offshoot of its corporate website rankings and use an IR-focused scoring system devised by IR Web Report. For more information, see the October 25, 2011 posting “Introducing the Investis Online IR Rankings” by Dominic Jones at IR Web Report online.

What makes a good annual report?

What’s the secret for a good annual report? It usually boils down to keeping things simple, but keeping them simple these days is a challenge. Rising demands for more disclosure and the integration of sustainability reporting are factors making annual reports ever longer and more complex. Unfortunately, too many annual reports are choked with low-quality information, disconnected content and boilerplate, all of which obscures key messages.

Clear, crisp communication, on the other hand, is a sign of strong leadership. It’s also an opportunity to improve engagement and dialogue with stakeholders. Four techniques for creating a good annual report are: (1) focus on strategy; (2) cut the clutter; (3) sum it up; and (4) speak plainly.

(To learn more, read “What makes a good annual report?” by Richard Ketchen at IR Web Report online.)

Communication Technologies put Privacy at Risk

According to a recent survey, Canadians are heavy users of social networks and other communications technologies, but many are not taking basic steps to protect their personal information. A telephone survey of 2,000 randomly selected adults, commissioned by the Office of the Privacy Commissioner of Canada (OPC), found that three-quarters (74%) of respondents own at least one mobile communications device, such as a cell phone, smart phone or tablet. However, only 4 in 10 use password locks for the devices, or adjust their settings to limit the sharing of personal information that may be stored on the devices.

The Canadians and Privacy Survey 2011 found that one-third of Canadians use public Wi-Fi sites, such as those located at coffee shops and airports, where online communication may not always be protected by encryption. Of those, fully 85% admitted to some concern about possible risks to the security of their personal information.

The poll, conducted by Harris/Decima, also found that just over half (51%) of respondents use social networking sites, such as Facebook, MySpace and LinkedIn. Fortunately, 4 in 5 said they take advantage of privacy settings that allow them to control access to their online content. Even so, 45% of all respondents who use social networking sites acknowledged that they are concerned about the associated risks to their privacy.

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.

Mobile insecurity

The proliferation of mobile computing has brought on a number of challenges, specifically around security issues. Smartphones are repeating a pattern witnessed in the 1980s with desktop computers. They flood into the corporate fold without any rational plan. And very often, they are introduced by employees who can’t resist the status statement these devices make. The greatest obstacle to security is the users themselves. People believe nothing of value resides on their device, yet much can be used for identity theft, intellectual property theft or espionage. Everyone likes these devices for the immediacy and convenience, and don’t want to be bothered with security barriers, especially passwords. This is why many users deactivate the password protection, which to begin with is very rudimentary and requires only a four-digit PIN identification. In a regular notebook, that would never be accepted as security. To learn more, read the article “Mobile insecurity” in the September 2011 CAmagazine online.

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.)