April 2008 Global Developments in Corporate Reporting Charles Tilley Chartered Institute of...

April 2008

Global Developments in Corporate ReportingCharles Tilley

Chartered Institute of Management AccountantsChief Executive

Global Developments in Corporate Reporting

CIMA Innovation and Development

Global Developments in Corporate Reporting April 2008

• Financial Reporting Supply

Chain

• Narrative Reporting

• Report Leadership

• Public Sector

The Agenda today


• CORPORATE GOVERNANCE

• FINANCIAL REPORTING PROCESS

• FINANCIAL AUDITING PROCESS

• USEFULNESS OF FINANCIAL

REPORTS

FINANCIAL REPORTING SUPPLY CHAIN

Current Perspectives and Directions


• In recent years, there have been significant efforts to change and improve financial reporting. What is the result of these changes?

• Has the financial reporting process become better or worse? Have the financial reports become more or less relevant, reliable and understandable?

• What should be done next?

• Global Survey June/July - 341 responses from around the world and from all parts of the FRSC

Introduction


Positives:• Increased awareness that

good governance counts• New codes and standards• Improved Board structure• Improved risk

management and internal control

• Increased disclosure and transparency

Areas of Concern:• Governance in name but

not in spirit

• Overregulation• Development of a

checklist mentality• Personal risk and liability

for directors and management

• Cost benefit concerns

Corporate Governance


Further Improvements :• Continued focus on behavioral and

cultural aspects of governance• Review existing rules• Further improve quality of

directors• Better relate remuneration to

performance• Expand view from compliance to

business governance

Corporate Governance


Survey Results :• Corporate governance has

improved• Balance between costs and

benefits has become better

Positives:• Convergence to a single

set of global financial reporting standards

• Improvements to regulations

• Board of Directors / Management taking ownership of financial reporting

• Improved internal control over financial reporting systems

• Improved technology for preparing financial reports

Areas of Concern:• Transition to IFRS• Complying/reconciling

accounts to different financial reporting standards

• Complexity of financial reporting standards

• Focus by companies on compliance instead of essence of the business

Financial Reporting Process


Financial Reporting Process

Survey Results:The financial reporting process has improvedBalance between costs and benefits is about

the same

Further Improvements:• Continue convergence to one set of

financial reporting standards• Simplify and clarify financial reporting

standards - more principles and less rules• Ensure Boards of Directors

pay attention to the quality of financial reports

• Additional education and training for preparers


Financial Auditing Process

Positives:• Improved auditing

standards and processes• Increased awareness,

commitment and competence of auditors and audit committees

• More risk focused audits• Greater auditor

independence• Improved quality review

and auditor oversight

Areas of Concern:• Reduced scope for

professional judgment• Overregulation• Liability fear leading to

boilerplate audits and lack of innovation

• Limited auditor’s communication with external stakeholders

• Limited choice of audit firms• Increased audit cost relative

to perceived benefits


Financial Auditing Process

Survey Results:The financial auditing process has improvedBalance between costs and benefits is about

the same

Further Improvements:• Continuous focus on independence and

integrity• Convergence to one set of global,

principles-based auditing standards over time

• Consistent use of audit standards and safeguarding of quality within audit firms

• Improve auditor’s communication, • Limited/proportionate liability for auditors• Greater choice of auditor desirable


Usefulness of Financial Reports

Positives:• Better financial

information• More disclosure and

comparability in financial reports

• Improved reliability• Increased emphasis on

narrative reporting• Easier access to financial

information

Areas of Concern:• Reduced usefulness due to

complexity• Regulatory disclosure

overload• Liability• Difficult and often changing

financial reporting standards



Survey Results:• All sources of information about a

company are useful• Annual reports preferred to real time

or monthly information• Mixed results about XBRL• Paper financial reports remain useful• Relevance of financial reports has

improved• Understandability of financial reports

is about the same• Reliability of financial reports has

improved



Further Improvements:• Improve communication within the financial

reporting supply chain

• More “business driven” information in financial reports

• Better alignment of internal and external reporting

• Improve users’ access to electronic data

• Short form reporting focusing on the material issues


FINANCIAL REPORTING SUPPLY CHAINCurrent Perspectives and Directions

http://www.ifac.org/Store/Details.tmpl?SID=12047547112246020


Narrative Reporting


- financial reports greatly enhanced when the bare figures are supplemented with insightful narrative,

- use of non-GAAP key performance indicators

- reconciled to, the IFRS/GAAP figures

- allow the company’s financial story to be told

Background to the initiative

• Increasing complexity

• Effective reporting/communication

• Need good information

• Companies adopting certain aspects

• Challenge – internal information

• Online Corporate Reporting

• Executive remuneration


Generico annual report

• Extracts from a fictitious company’s annual report

• Illustrates “practical” ideas for effective, accessible reporting

• Can be implemented today

• All communication channels

• Not final answer


First publication – launched November 2006 • Key issues investors raise about reporting

• Focused on three key areas Modelling the future Rethinking the financials Effective communication

• Three-tier approach What is the problem?

What do investors want?

• How have we addressed these needs?


Reporting of Executive Remuneration

• Generates headlines

• Sensitive and heavily-scrutinised area of reporting

• Lack of clarity over who owns this section


Practical ideas, implemented now


“The Public Sector”


• Performance management culture

• Appropriate structures

• Expertise and training

Conclusion

• Progress being made

• Issues to be addressed- Transparency

- Narrative reporting

- Quality

• Public Sector


April 2008


Charles TilleyChief Executive


April 2008 Global Developments in Corporate Reporting Charles Tilley Chartered Institute of...

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