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Core & More: Making Reporting Smarter
Corporate reporting is how companies communicate with stakeholders as part of their accountability and stewardship obligations. Corporate reporting needs to keep pace with the developing economic reality and address the needs of a wider stakeholder audience. Rapid changes in the broader business environment have increased concerns over whether corporate reporting is continuing to fulfil its objectives.
The momentum for change toward better communication and improved accountability is obvious from the increasing public debate in and interest for corporate reporting. However, a common view has yet to emerge on what the problems are, let alone how to adapt corporate reporting to achieve a better depiction of companies’ economic position and performance.
Launching the debate
In 2015, Accountancy Europe published the Cogito paper, The Future of Corporate Reporting – Creating the Dynamics for Change, to stimulate an open debate among different constituents. It puts forward a new presentation approach to corporate reporting, the Core & More concept. It also raised the issues of the growing audience for corporate reporting, its content, financial information and non-financial information, policy making, innovation, and technology.
We engaged with preparers, users, auditors, regulators, academics and policy makers from across Europe on the report’s content, and analyzed the responses received in a follow-up paper in March 2017. Stakeholders recognized the need for debate and welcomed the Core & More concept. The International Accounting Standards Board even referred to Core & More in its wider corporate reporting initiative. At the request of stakeholders, we further clarified the Core & More concept and how it relates to the Integrated Reporting initiative in our September 2017 paper, Core and More: An Opportunity for Smarter Corporate Reporting.
Core & More
Users need high-quality and concise corporate reporting. Ultimately, Core & More reports would contain relevant organization-specific information instead of voluminous reports with boilerplate reporting information.
Core & More aims to establish “smarter” corporate reporting by organizing financial and non-financial information in a more connected, logical, and structure way. Key information likely relevant for a wide range of stakeholders would be captured in the Core report, and supplementary details for a more specific audience would form the More reports.
The Core & More concept encourages corporate reporting in a “smarter” way and for a wider stakeholder audience. The concept proposes a way of presenting and linking information. The idea is to bring the most relevant information on the company together in a well-structured summary (Core), from which users can then dive into more specific details according to their needs (More). This could replace today’s practice of siloed reporting where different standalone reports lack an overarching summary and structure. The concept also addresses how to use technology and online reporting.
The Core pillar is envisaged as a short and concise overarching report, covering the most relevant and material information about the company. The Core report would contain what is deemed important to all involved stakeholders. The detailed information captured in the More reports would have a more specific audience. Most of the Core, together with selected More reports or parts of them, would likely comply with the legal reporting requirements as currently fulfilled by the annual report.
The specific content of the reports would depend on what a company thinks its stakeholder information needs are. Although the Core & More concept doesn’t aim to define the content of corporate reports, we have some ideas.
- Core: key financial and non-financial figures, prospects, and risks
- More: complete financial statements, detailed sustainability information, and employee-related information
The Core & More concept raises the need to fully cover both financial and non-financial information in corporate reporting. However, the specific content of the reports would depend on what a company thinks its stakeholder information needs are. In some cases, determining materiality, relevance, and reporting principles might prove to be more challenging when considering a wider audience. Materiality and relevance of information is different for a consumer compared to an investor. Implementing this principle should help cooperation between people working on financial information and those focusing on non-financial information.
We also considered the impact that technology will have on corporate reporting. Stakeholders already expect a move toward online reporting. In a digital Core & More report, links and technology will help readers find the information that matters most to them. Someone needing further details on a topic presented in the Core report could easily access the relevant More report thanks to a simple hyperlink. The executive summary in the Core report could even be accompanied by a dashboard based on the user’s preferences.
We find that the Core & More concept is consistent with Integrated Reporting <IR>. Both concepts recommend reporting what is crucial to the value creation of organizations. The integrated reporting initiative has helped achieve global acceptance of value driven reporting in recent years. Integrated reporting will help companies communicate a clear, concise, integrated story to explain how all their resources create value. The International Integrated Reporting Council should certainly continue to fine-tune and develop the framework.
Experimentation in the market will be instrumental to develop new reporting concepts, such as Core & More. However, innovation must be fostered and encouraged. Key stakeholders, including policy makers and regulators, should cooperate to help generate the right balance between policies, regulation, and innovation.
A successful example of experimentation is the Financial Reporting Lab in the UK. It brings together preparers and investors to help market players innovate and improve corporate reporting. The Lab provides a safe environment, collaborative approach, and opportunity to test examples to identify best practices. It is a powerful instrument that facilitates discussions amongst stakeholders. Finally, the Lab’s link with the UK regulator, the Financial Reporting Council, also seems to have contributed to its success.
A similar corporate reporting lab at the EU level could help foster innovation in the corporate reporting arena. It would facilitate the exchange of best practices between EU countries.
Our recent event brought together over 120 participants to discuss the future of corporate reporting with key stakeholders and decision makers (for more information, see the event summary and videos).
To ensure next steps for the Future of Corporate Reporting, we call:
- On companies to start experimenting with the Core & More concept to further develop and improve it, together with other stakeholders such as investors;
- On governments and enforcers to encourage, or at least accommodate, companies wishing to experiment with new reporting concepts;
- For coordination of the non-financial information initiatives and frameworks toward a single global principles-based reporting framework (see our September 2017 Call for Action);and
- For consideration on who will ensure quality and discipline in non-financial information reporting if the International Accounting Standards Board does not feel equipped to do so, per Chair Hans Hoogervorst at our event.
Shaping this debate is an ongoing effort at Accountancy Europe. Our next steps are:
- Researching the impact of technology on corporate reporting, possibly by cooperating with other actors in the reporting scene; and
- Developing the idea of a European corporate reporting lab with our stakeholders.
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