Companies face an increasingly challenging reporting environment. Globalization means that they have more complex operations spanning different jurisdictions. The pace of regulatory change is increasing, and investors and capital market participants have rising demands. And, internally, the board and senior management are requesting additional information. Three-quarters of respondents say that the reporting environment has become more complex in recent years.
Companies recognize the need for better reporting. Among respondents, 74% agree that they should improve the information they provide to external stakeholders. In addition, only a minority rate the timeliness, cost, level of compliance and efficiency of production of reporting as highly effective. Most recognize that they have room for improvement in every area, but particularly in speed of closing and degree of integration. The finance function needs to ensure that reporting is meeting the different needs of stakeholders, and that it is timely, accurate and consistent.
We understand the challenges companies face in their reporting, assess the current state of corporate reporting, and examine the internal and external challenges to overcome in order to improve reporting. We also identify a solution to address the increasing demands and complexity. Connected reporting brings together financial and nonfinancial information and combines internal and external reporting, resulting in greater efficiency and consistency.
We’ve identified five important issues facing the adoption of connected reporting:
1. Business complexity – and therefore the complexity of reporting – continues to rise
Globalization has led to a more complex business structure. This means that companies have to comply with a wider range of reporting standards. As companies grow, enter new markets and develop new products and services, they inevitably face greater complexity.
2. Organizations face a more dynamic and demanding reporting environment
Companies face increasing demands on reporting, driven by both internal and external stakeholders. The number of reports that companies issue is growing, and reporting is expanding to include more financial and nonfinancial aspects. Nonfinancial reporting, such as sustainability, will increasingly have to be covered, and reporting will also tend to include forward-looking elements. Both internal and external stakeholders are looking for more frequent information. But they also expect that information to be accurate.
Companies will need to strike a careful balance between speed and accuracy. They must also consider the needs of different audiences, and ensure that their reporting is appropriate for different requirements.
3. Internal and external challenges to improved reporting are considerable
The speed of regulatory change is such that companies find it difficult to keep pace. With limits on resources, companies need to improve reporting efficiency. They can do this by integrating or upgrading IT systems, making data more consistent and widely available, and optimizing processes. Finding the right talent for reporting functions, beyond the traditional accounting skill set, is also a challenge. Downsizing of the finance function has made it more difficult to have the available resources to improve reporting, according to the majority of respondents.
4. Companies see substantial scope for better reporting
They think that their reporting frameworks could be made less complex and time-consuming, and could provide better information. This would bring internal benefits in terms of greater accuracy, consistency and transparency that, in turn, would lead to better decision-making.
5. Connected reporting would bring a range of benefits
Connected reporting is an approach to develop an organization’s current reporting to bridge the gap between the different information requirements of internal and external audiences. It enables organizations to communicate their financial and nonfinancial information, using consistent data, simplified IT structures and methods, in order to reduce complexity in the reporting process. There is a strong aspiration to move toward connected reporting. Companies recognize that this would strengthen the reporting process and the quality of reporting. In turn, this would bring benefits for relationships with investors, connectivity with regulators, decision-making and the reputation of the business. However, many find it difficult to implement connected reporting. They will need to make progress in a number of areas for this aspiration to become reality. The most urgent steps needed are to improve the availability, accuracy and consistency of data, and invest in IT infrastructure.
To be successful, efficient and effective in their reporting, companies have a number of key priorities:
- Introduce connected corporate reporting to allow the provision of robust, consistent and timely data beyond the statutory financial report.
- Report in a manner that is well connected to strategic messaging, ensuring that internal and external communications are aligned, and that the delivery is effective, impactful and actionable.
- Given the complexity and volatility of the reporting environment, and the demands that are placed on the finance function, make the process as efficient and cost-effective as possible.
All of this requires companies to take a broader, long-term view of their reporting, in the context of the strategic priorities of the firm, rather than just focus on compliance. This is likely to require investment in improved data analytics and IT infrastructure, optimization of business processes and executive focus.