Financial stakeholders challenged to understand company performance
London, 25 November 2009 – Despite the wealth of publicly available information on company performance, stakeholders still struggle to see the bigger picture of how well businesses are performing, finds a new report for Ernst & Young.
The financial communication challenge, a report produced by Tapestry Networks for Ernst & Young, found that financial stakeholders are increasingly relying on non-audited sources of information to get a better picture of company performance, begging the question of whether audit committees should expand their review of these kinds of communications.
Pascal Macioce, Ernst & Young’s head of Assurance for Europe, Middle East, India and Africa, comments: “Financial stakeholders now want a complete overview of company performance. Audited financial statements remain highly important but this latest research demonstrates the need for businesses to implement a new level of communication if trust is to be restored in financial statements. This could help to bridge the mistrust created by the financial crisis.”
Added complexities but room for improvement
Added financial reporting complexities and a continuing volatile economy means that stakeholders are turning to managements’ analysis of company performance and forecasts in addition to key operational performance metrics to help them better understand company performances.
Stakeholders want to see improvements in both corporate governance and risk management reporting. Many respondents viewed governance disclosures as a work in progress in many European countries, with significant differences existing across borders. They also wanted to see a more robust, prioritized list of key risks from the company to aid their understanding of the business.
Too much information?
Despite being retrospective in their nature, stakeholders regard audited financial statements as core to their decision-making. However, respondents had mixed opinions about the length and amount of information that companies were producing. Some commented that the comparability of financial statements had improved, while others were concerned that changes to financial reporting standards had made comparability – albeit in the short term – difficult between companies and from one financial period to the next. Analysts in particular highlighted that financial statements had become increasingly voluminous and complex throughout the last decade making it difficult for them to turn around quick market comments.
Macioce comments: “While these findings may at first appear contradictory, it is clear that people using financial reports want quality, clear, concise, relevant and readily available information to aid decision making. The financial crisis put companies under real pressure to be transparent on decision making and this resulted in more commentary around fair value, financial instruments, valuations and pensions accounting.”
“Following the most volatile financial reporting season in years, companies are still under pressure from stakeholders who want to compare financial periods and better chart how businesses are performing. Management and audit committees must listen to the concerns of investors and analysts when reporting financial information and ensure that they are providing the right amount and level of information to ensure that investors, analysts and the wider public are given the broadest financial picture possible,” he added.
One respondent in the interviews said: “Gone is the time for managing the message. Instead, full disclosure is a better approach.”
The financial communication challenge is available to download from www.ey.com.
About the report
This paper is part of the InSights series for European audit committee members produced by Tapestry Networks and draws highlights from interviews conducted with a wide-ranging group of European financial stakeholders and leading audit committee chairs.
About Tapestry Networks
Tapestry Networks is a privately held professional services firm that brings leaders together to solve complex problems. Since 2002, networks convened by Tapestry Networks have tackled some of the most significant strategic challenges facing institutions and society, including raising standards in corporate governance in the United States, Canada, and Europe, developing strategies for a more sustainable healthcare environment in Europe, and enhancing national security in the United States through public-private collaboration.
For more information, please visit www.tapestrynetworks.com.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax and legal, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
Ernst & Young expands its services and resources in accordance with clients’ needs throughout the CIS. 3,400 professionals work at 16 offices throughout the CIS in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Togliatti, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Baku, Kyiv, Donetsk, Tashkent, Tbilisi, Yerevan and Minsk.
For more information, please refer to www.ey.com.