IT'S REPORTING season, but there is more to it than just profit and loss. What, how and when financial information is reported is a key issue for investors, and it is equally relevant to finance chiefs and the companies they work within.
ACCA-qualified management accountants are no strangers to financial reporting, of course. But we are always keen to develop a greater understanding of the investor landscape so that our members are fully clued up on the issues. It's also important that those studying for the ACCA qualification - who will be running finance functions in the future - have a firm grasp of the investment arena.
Over the last year, we have produced three reports examining what investors want from corporate reporting.
For the final and fourth report, we have delved into what chief financial officers (CFOs) and finance directors value.
The idea is to understand in more detail the evolving investor universe since the financial crisis. Inevitably, there will be a tension between the need for greater transparency and jeopardising competition in the market - not to mention the real danger of information overload.
ACCA's latest research,
NEED FOR SPEED The speed with which companies release their annual accounts is seen as an important indicator of efficient management and good governance. Almost two-thirds of CFOs said that external stakeholders see a speedy close as a sign of good management. A majority of CFOs have already made efforts to close their accounts more quickly, and most intend to reduce closing times further over the next three years.
The general view was that faster closing has not only improved the reporting culture, but has also led to better decision-making in the corporate reporting cycle. Further, it has allowed companies to re-allocate important resources in their finance departments to make them more efficient.
Although speed is seen as an "every-body wins" improvement, the profession is cautiously supportive of a move to real-time reporting - giving rolling information to investors. While twothirds of CFOs said they were warm towards real-time reporting, they also expressed concern that it could compromise competition-sensitive information and lead to mis-statements. This is perhaps a realistic approach and chimes with what investors told us. Our
Real-time reporting within a business rather than for investors, however, has advantages, and many companies have taken steps to secure real-time information internally. Up-to-the-minute data about key performance metrics is a vital source of competitive advantage, since it helps firms to become more agile in responding to market changes.
It also has value if executives have confidence in the underlying data. Accessing accurate, complete data is a major challenge, particularly in firms where data is distributed widely across multiple applications and silos. Making data more consistent, standardised and accurate remains a key goal.
BEYOND THE FINANCIALS Like real-time reporting, there is hesitation among finance leaders about moving towards integrated reporting (IR), which can include non-financial as well as financial performance, the strategy and risks of an organisation, the impact a business has on a local community, its sustainability measures and so on.
At ACCA, we embrace the concept wholeheartedly and have led the way in incorporating IR into our qualification and our own annual report. But we recognise that many firms remain uncertain about the model.
Within three years, nearly half the companies surveyed said they were either taking active steps to move towards an IR model, or had already implemented one. The others are adopting a "wait and see" approach or, in the case of 10 per cent, do not intend to make the move unless it is compulsory.
Finance chiefs consider that the main benefit of IR is the ability to present the company as an advocate of sustainability.
But many also say that it would help them to align the company's risks with its opportunities, adopt a more holistic view of the true drivers of performance, and build better relationships with external stakeholders. A prior report in the Understanding Investor series found that 93 per cent of investors expressed support for the concept of integrated reporting.
AUDIT ROTATION Audit is going through a period of change and what those within businesses think about it is vital. Just last week, the subject made headlines when
Finance chiefs told us they had a good relationship with their auditors, but indicated there was room for improvement around costs and a lack of competition in the market: 60 per cent wanted to see lower fees, while 47 per cent favoured greater competition.
Those figures do not give the full picture, however. Interviews with CFOs revealed that, while they were keen to cut costs, they made a link between price and quality. They do not want the quality of an audit to suffer if fees fall - and many fear that more frequent rotation of auditors may cause fees to increase, because the prospect of shorter contracts forces auditors to charge more upfront as they need more time to get up to speed.
WHAT NEXT There is an appetite for faster reporting. Many are reducing the time lag between closing the accounts and releasing information to the markets. There is also an appetite for collecting and releasing some information in realtime.
Yet many are cautious, with most CFOs recognising that quarterly (or more frequent) reporting has systemic consequences for markets. Care must be taken to make the right decisions on reporting frequency.
But business-as-usual is perhaps no longer an option. Companies need to think about the impact on reporting of trends like the current emphasis on sustainability.
A few years ago, corporate social responsibility programmes were adjuncts to business. Today, sustainability is seen as an integral part of it.
There is a fine path to tread to ensure investors' needs are met when there is a greater desire for information, and memories of the crisis remain fresh enough for transparency to be high on the agenda. But businesses also cannot open their books on a regular basis for fear of fuelling short-termism.
While ACCA's four-part assembly of investor reports go some way in giving insight into this field, they are just a starting point. It will take investor groups, ACCA and financial leaders to design a sensible investment environment for a post-financial crisis world.
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