Focus: Corporate reporting

Corporate reporting: creates more work, but more value too

Prof. Dr. rer. pol. Thomas Berndt
Professor, University of St. Gallen

Corporate reporting is in a phase of rapid, far-reaching transformation. There are many reasons for this, with new business and financing models, new possibilities in digital publishing, tighter regulation, and a widespread need for sustainability and compliance all driving change. In the future, organisations will need to produce integrated reporting bringing together financial and non-financial information in a logical way.

Three qualities characterise good corporate reporting. Firstly, good corporate reporting is geared to the expectations of the people it’s addressed to, primarily the investors who provide equity and debt financing.
Secondly, good corporate reporting is consistent and comparable. It won’t do, for example, to communicate information on a specific theme one year and then make no mention of it the next. Analysts can only evaluate companies if they can compare different reporting periods. It also has to be possible to compare different companies.
Thirdly, corporate reporting has to be easy to read. User-friendly presentation of information in the form of text, tables and graphics gives readers a rapid, clear grasp of the essentials. This means leaving out information of secondary importance or pictures with no real message.

In search of form and content

In recent years a whole new set of challenges has emerged in terms of corporate reporting. There has been an increase in the amount of information assumed to be or actually necessary. This information is also changing more rapidly. Many investors complain about a growing ‘jungle of information’ or ‘information overload’. But it’s often the very same investors who demand increasing amounts of information from businesses.

Another reason for the growing surge of information lies in changes in the business reality. On the one hand business models have become more and more complex in many cases. Companies often find themselves operating in completely new areas of the market and tapping into unconventional sources of debt and equity capital. On the other hand the digital revolution and the emergence of ‘Business 4.0’ has opened up new channels of communication (see Corporate governance report).

When it comes to the form and content of their reporting, most companies are engaged in a process of searching. They’re asking what information has to be included in which report; they’re giving thought to what has to be published in printed form, and what can be made available electronically on the Internet. Not all investors like the way reporting is increasingly delivered in digital form, and many are finding it hard to let go of printed annual reports with plenty of pictures.

In the current phase of experimentation it’s harder to compare and analyse business reports. Many companies fail to see the real purpose, wrongly viewing the annual report as a kind of marketing exercise. Overdoing the creative graphics and attractive images can be counterproductive. What it’s really about is boiling down your message to provide an assessment of the economic position (see Management report).

Regulatory response to the financial crisis

The growing torrent of information is due in large part to the increasing number of new laws, rules and standards. Seven years may have elapsed since the financial crisis, but the regulators are still trying to respond to and process it (see Tax transparency). While it’s true that frameworks such as Basel III from the Bank for International Settlements (BIS) and edicts from the Swiss Financial Market Supervisory Authority (FINMA) are primarily aimed at the banking sector, the new regulations also have an indirect impact on businesses outside the financial services sector and their reporting. Listed companies find themselves confronted with a host of new accounting and financial reporting requirements from the International Accounting Standard Boards (IASB) and the Financial Accounting Standards Boards (FASB). The new rules contained in the International Financial Reporting Standards (IFRS) and the United States Generally Accepted Accounting Principles (US GAAP) are so numerous and complex that their entry into force has been repeatedly postponed (see Financial report). In Switzerland there has been a notable development in the wake of the Minder Initiative and the resulting Ordinance against Excessive Compensation at Listed Companies (VegüV/ORAb): since 1 January 2014, listed companies based in this country have had to produce a compensation report (see Compensation reports).

The sustainability trend

A large number of companies have been dealing with the topic of sustainability in their corporate reporting for some time now (see Non-financial reporting). This is probably the clearest reflection of recent changes in the reality of business life. Organisations are increasingly gearing their business models to green and clean tech, manufacturing their products to more stringent environmental and social standards. If a company really has improved in terms of sustainability, naturally it makes sense to point this out in its reporting: do good and talk about it!

Sustainable businesses satisfy the needs of investors who take sustainability into account in their decision-making. And they take account of public opinion that increasingly rejects companies that fail to come up to appropriate standards of environmental and social behaviour.

Now the regulators are also explicitly addressing the issue of sustainability. Under Directive 2013/34/EU of the European Parliament and of the Council, for example, certain large companies will in future have to disclose information on environmental, social and employee-related strategy, risks and outcomes in their reporting (see Management report). They will have to show how they are complying with human rights, fighting corruption and working to ensure diversity in their management and oversight bodies.

Integrated reporting initiative

In August 2010, representatives of public institutions, companies, auditing firms, stock exchanges and standards setting organisations joined forces to create the International Integrated Reporting Council (IIRC) (see Integrated reporting). This integrated reporting initiative is a promising attempt to logically combine financial and non-financial information. It’s not acceptable for the figures in a financial report to tell a different story from the information presented, for example, in a sustainability report. A critical investor will always ask how the sustainability measures described by a company impact monetary factors such as sales, personnel expenses, R&D and patents.

Integrated reporting is only credible if the people working for the organisation also take an integrated approach in the way they think and work. Otherwise any reporting on sustainability will fail to ring true, and critical investors and analysts will see it for what it really is: mere lip service to sustainability.

So far, no ideal form of integrated reporting has emerged. Here too, companies are in the process of seeking and experimenting, gearing their efforts to best practice and proceeding step by step. Gradually they’re addressing aspects of integrated reporting and aligning their various reports. But we’re not likely to see completely integrated reports for a few years yet.

New role for the auditors

In particular, the auditor’s role in integrated reporting still remains unclear. Many organisations shy away from including sustainability-related issues in their audited annual report. They’re afraid of setting undesired precedents and unnecessarily expanding the range of information subject to audit (see New audit report).

It’s true that there is a risk that auditors could in future refuse to sign off sustainability reports. But there are also opportunities for businesses. In 2011, for example, the Institute of Public Auditors in Germany (IDW) passed IDW Assurance Standard 980: Principles for the Proper Performance of Reasonable Assurance Engagements Relating to Compliance Management Systems (commonly known as PS 980). Many companies have come to appreciate this standard, because it sets down the basic components of a compliance management system while nevertheless allowing a certain amount of freedom in its design.


Corporate reporting is an increasingly challenging business. Besides the financial report, many investors now expect to see non-financial information on themes such as sustainability and compliance. New rules contained in IFRS and US GAAP have also helped swell the inundation of information. The rules issued by standards setting organisations such as the IASB and FASB have not got any simpler or clearer either. Ultimately, changes in corporate reporting are being driven by a complex interplay of valid investor interests, the development of communications media, new business and financing models, and increasingly tight and far-reaching regulation.

Many large companies and multinationals are in a process of experimentation. They’re testing out the possibilities of digital delivery and seeking ways of establishing integrated reporting. We recommend drawing up – and sticking to – a roadmap for continuously improving corporate reporting.

Sooner or later, small and medium-sized enterprises (SMEs) will be just as affected by the financial reporting requirements as large companies. But most are electing to wait and see what happens. In doing so they’re missing valuable opportunities because they view corporate reporting as an onerous regulatory obligation rather than a chance to communicate comprehensively on their own business efforts. It’s worth remembering that while corporate reporting creates more expense, it creates more value as well, because continuous, sustainable and transparent reporting builds investor trust.

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Peter Eberli

Peter Eberli

Assurance Partner, Corporate Reporting Services Leader, PwC Switzerland

Tel: +41 58 792 28 38

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