IFAC's Points of View

Enhancing Corporate Reporting

Corporate reporting should capture all relevant information about organizations.  However, investors and other stakeholders are demanding more, higher-quality information and insights about company performance, risks, opportunities, and long-term prospects than are available from the conventional financial reporting process.  To be accountable, companies need to provide a clear and comprehensive picture of their organization’s ability to create sustainable value over time.

IFAC sees a significant opportunity to enhance trust in companies and confidence in markets by including information in corporate reporting that is relevant, reliable, and comparable with respect to measures derived from the financial statements (i.e., “non-GAAP” or “non-IFRS” measures), other “Key Performance Indicators” connected to financial performance, and broader information related to value creation, sustainability or environmental, social, and governance factors.

Our partnership with the International Integrated Reporting Council shows our support for enhancing corporate reporting by including a broader scope of narrative disclosures and metrics. Integrated thinking and forward-looking reporting enable organizations to communicate effectively — and stakeholders to understand — prospects for longer-term value creation.  A number of additional standard-focused initiatives and frameworks have also emerged to convey this information.

 

1. Need for Enhancing the Corporate Reporting System

The corporate reporting landscape has become a mosaic of mandatory and voluntary disclosures under various frameworks and standard-setting initiatives – primarily focused on value creation, sustainability, and environmental, social and governance factors.  Stakeholders find it difficult to rationalize the information being provided and to understand the linkage to financial information.1

  • IFAC believes that this reporting ecosystem, consisting of multiple and competing reporting workstreams, does not best serve the interests of capital markets, companies or their stakeholders.  The resulting complexity and lack of comparability can lead to inefficiency and increased costs — for both companies and investors.2   
  • IFAC supports the development of and convergence towards relevant, reliable, and comparable narrative information and metrics (e.g., non-monetary volumes, number counts, ratios, percentages, etc.) for which suitable criteria can be developed to facilitate assurance conclusions. 
  • IFAC believes that such broader-based corporate reporting serves the public interest and that alignment needs to occur before a fragmented or regional approach to reporting and regulation becomes ensconced as standard practice.  Both companies and investors increasingly support this approach.3 Ideally, coalescing around best market practices or accepting a single set of high-quality standards should occur before regulatory intervention.  
  • IFAC supports the efforts of all participants in the Corporate Reporting Dialogue, the Task Force on Climate-Related Financial Disclosures, World Business Council for Sustainable Development, and other organizations who contribute valuable input toward the goal of enhancing corporate reporting.  At the same time, IFAC reiterates the need for the emergence and implementation of a uniform, global approach.

 

[1] Corporate Reporting Dialogue, “Driving Alignment in Climate-related Reporting,” Executive Summary, page iii, September 2019.

[2]CFA Institute 2017 "Environmental, Social and Governance (ESG) Survey" (p. 18) highlights a lack of appropriate quantitative ESG information, lack of comparability across firms, and questionable data quality/lack of assurance. 
McKinsey 2019 survey "More than Values: The value-based sustainability reporting that investors want" (including 50 companies, 27 asset managers, 30 asset owners) identifies the “excessive effort and expense” in providing similar information in answer to multiple requests.  Investors and corporate executives cited “inconsistency, incomparability, or lack of alignment in standards’ as the most significant challenge” related to sustainability reporting.  

[3] McKinsey survey revealed 86% of corporations / 88% of investors favor a single or fewer standards for sustainability reporting. 

  
 

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