15 minute read 6 Sep 2018
Colleagues brainstorming tech start-up office

Why companies can benefit from connected reporting

By

Peter Wollmert

EY Global and EY EMEIA Financial Accounting Advisory Leader

Senior Assurance leader. Promoting quality and effectiveness in corporate reporting and the audit. Advocate for the future of the accounting profession. Passionate runner and scuba diver.

15 minute read 6 Sep 2018

Connected reporting can improve internal decision-making, and relations with regulators, investors and the public. 

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.

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Chapter 1

Business complexity continues to rise

As companies expand and grow, regulators and investors alike demand more information.

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.

Businesses today inhabit a more complex environment than at any time in history. Over the past few decades, globalization has meant a dramatic expansion in the scope and reach of many companies. Even if companies are not selling their products in every region of the world, it is likely that they have complex supply chains reaching into distant markets, shared service centers and a range of other operational entities.

Among the 500 companies that EY surveyed for this report, half have more than 10 business units and one-third are active in more than 10 countries. More than 60% have seen their number of legal entities and jurisdictions in which they operate increase over the past three years. Companies are also diversifying into other market segments. Over the same period, more than 70% have increased the number of products and services they sell.

Greater business complexity is mirrored by greater reporting complexity. Among our respondents, three-quarters have more than five reporting systems, and a similar number must comply with more than five reporting standards. More than two-thirds have increased the number of reports they issue over the past three years.

Companies are operating in an increasingly complex environment
Frequency would certainly be up there as a key challenge. Not necessarily for financial statements … but the key numbers that a company’s investors may consider important.
Joon Arn Chiang
Asia-Pacific FAAS Leader at EY

Business growth also brings other challenges for reporting, as Neri Bukspan, Financial Reporting and Disclosure Leader, FAAS Americas at EY, explains. “As they become larger and more global, companies experience a dramatic rate of change in regulations and investor expectations, and face greater scrutiny from auditors, boards and institutional investors,” he says. “Investors and others demand more information, and expect it to be robust, controlled and timely.”

Therefore, as complexity rises, companies face the need to upgrade their reporting infrastructure.

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Chapter 2

Organizations face dynamic and demanding reporting environment

Different stakeholders with different needs demand different data at different times.

Companies face increasing demands on reporting, driven by both internal and external stakeholders. The number of reports companies issue is growing, and reporting is expanding to include more financial and nonfinancial aspects. Nontraditional areas, such as corporate responsibility and sustainability, will increasingly have to be covered, and reporting will also tend to include a forecasting element.

Growing business complexity is coinciding with an increasingly complex reporting environment. Companies face more varied demands than ever from external stakeholders. For example, they must comply with a constant flow of regulatory and accounting requirements. Three-quarters of respondents agree that the reporting environment has become more complex in recent years.

Reporting is set to become yet more wide-ranging. There are now many aspects of reporting: regulatory financial; management and board; forecasting; governance; functional; corporate social responsibility (CSR); remuneration; tax and people; sustainability and integrated reporting. Each one may give rise to a portion of a report or a separate report.

Evolving with the dynamic reporting environment
They [investors] want more information about strategy. They want to understand more about risks and not necessarily just about the risks themselves, but about how they are being managed.
Neri Bukspan
Financial Reporting and Disclosure Leader, FAAS Americas, EY

Different stakeholders with different needs

Almost 70% of respondents agree that it is very challenging to satisfy the different needs of external stakeholders with corporate reporting. For example, on the one hand, regulatory requirements demand highly detailed reports with a very high degree of data accuracy to fixed timetables. On the other, investors may require much more accessible, short-format information on key performance indicators (KPIs) on as frequent a basis as possible.

“As both regulators and financial reporting standards require a significant volume of data to be presented in financial statements, it can often be difficult for shareholders or investors to identify the information they require,” argues Andrew Davies, UK&I FAAS Leader at EY.

Demands for frequency

The pace of business is increasing, and companies are attracting groups of investors with ever-shorter investment time horizons. Therefore, doubts are growing about whether the current reporting cycle is fit for purpose. Increasingly, the standard reports, such as the annual report, are regarded as reference materials. They have less and less bearing on the investment decision-making process and rarely result in market-moving information. More than two-thirds of survey respondents agree that external stakeholders are demanding more frequent reports.

An emphasis on forward-looking information

The emphasis on nonfinancial reporting is also increasing. Nearly three-quarters of respondents say that there is pressure on the finance function to provide more nonfinancial reporting information to internal and external stakeholders. This includes areas, such as governance, CSR, remuneration and sustainability reporting, that many companies now recognize to be highly important for their external image.

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Chapter 3

Four challenges to improved reporting

The challenges companies face to improved reporting are considerable.

There are substantial challenges to improved reporting. 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, especially by integrating or upgrading IT systems, strengthening the consistency and availability of data, 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.

External challenges include the speed of change

A fluid, dynamic market environment is the number one external reporting challenge, according to respondents. The pace of market change means that it is difficult for the finance function to provide sufficiently rigorous data that is not swiftly out of date.

Regulatory change poses concerns

Respondents also point to the number of accounting and financial reporting requirement changes — and the pace of this change — as a key challenge. This forces them to adapt their IT systems, and invest in more training and resources to deal with the compliance challenges. “Over the past few years, we’ve had a huge rise in the volume of accounting standards that has meant financial reporting has become more complex,” says Davies. “Changes in financial instruments, share-based payments, pensions and other accounting standards have all increased quite dramatically the number of disclosures required.”

Where has regulatory change in reporting impacted your organization the most?

Companies face major internal challenges

The biggest internal challenge is time to produce reports. Companies are clearly struggling to gather and analyze information, and report in a timely way. This is not only because of the sheer volume of information and the need to ensure accuracy and timeliness. It is also because of internal inefficiencies and resource constraints. The complexity of the organizational structure is also a key barrier, as is managing the cost of a highly involved reporting process.

Talent is a key issue

Talent is another major challenge. With reporting pressures increasing, and cost pressures on the finance function remaining intense, companies must find highly talented individuals who can work productively and strengthen reporting processes, while at the same time minimizing costs. More than 60% of survey respondents find it difficult to appoint the right people with the right skills for reporting.

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Chapter 4

Companies see substantial scope for better reporting

Most organizations are in good shape, but they could improve efficiency by reducing complexity.

Companies see substantial scope for reporting to improve. They think that their reporting frameworks could be made less complex and time-consuming, and could provide better information. This would also have internal benefits, in terms of greater accuracy, consistency and transparency that, in turn, would lead to better decision-making.

Most companies express fairly high levels of satisfaction with most aspects of their current reporting processes. Generally, they consider the timeliness, cost and level of compliance to be effective. “Most companies are not a disaster. In fact, many are quite good in many areas. But most still have much, much more output and optimization that they could achieve,” says Bukspan. “It could be systems. It could be integration of different naming conventions among different divisions, the finish of and choice of KPIs, process issues, cleanliness of data or IT.”

Improving efficiency

In addition, 78% agree that they could introduce greater efficiencies to the reporting process. Just 27% say that they are highly effective at efficiency of production in corporate reporting, and only 25% are very effective at speed of closing.

What degree of confidence do you have in the following aspects of your reporting?

Quality of reporting content

In addition to improving the efficiency of the reporting process, 74% of respondents agree that they need to improve the quality of information that they provide to external stakeholders. A key element of this involves moving beyond regulatory compliance. Purely complying with regulators’ requirements does not tend to result in reports that are accessible and useful to other external stakeholders.

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Chapter 5

Connected reporting would bring a range of benefits

Connected reporting allows companies to meet the demand for consistency on financial and nonfinancial information.

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 company. Many find it difficult to implement connected reporting, and 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.

Financial reporting is still often seen as a compliance issue, rather than a marketing or reputational issue, when it has the opportunity to be all three.
Andrew Davies
UK&I FAAS Leader, EY

Despite a background of increased complexity and the awareness that reporting could be more efficient, many companies have been slow to recognize the wider benefits of improving their reporting. “Financial reporting is still often seen as a compliance issue, rather than a marketing or reputational issue, when it has the opportunity to be all three,” says Davies. However, a growing number of companies recognize not just that they could be more efficient in their reporting, but also that better reporting would have benefits for investor relations and decision-making.

The benefits of connected reporting

Connected reporting offers a solution to the challenges of improving reporting. It enables organizations to meet the increased demand for consistency on financial and nonfinancial information. By connecting information, companies can improve both the decision-making process and the quality of the decisions they make, and provide a better picture for external stakeholders.

Connected reporting also helps companies to address the challenges of consolidation by bridging the gap between the different requirements of internal and external audiences and objectives. By helping to simplify IT structures and automating systems and methods, it reduces complexity. This, in turn, supports the production of consistent data and thus consistent, accurate reporting process and messages.

What would you consider to be the main benefits of a more connected approach to reporting in your organization?

Moving to connected reporting

Part of the reason for slow progress toward connected reporting, even where the benefits are recognized, is that companies must overcome major obstacles in order to implement it. The most significant of these are improving the availability, accuracy and consistency of data, and investing in updated IT infrastructure. Standardizing business processes is also crucial. Internally, it is important to connect the right competencies within the organization in order to provide all the information needed for connected reporting.

“There are two main steps that companies need to take,” says Chiang. “First, processes have to be upgraded — meaning the actual flow of the information, how it gets captured, how it gets transformed, and how to push output deliverables. Second, overlay the IT system, because you want to automate as much of the capturing, accumulation, transformation and generation as possible.”

Summary

Companies have to overcome obstacles when moving to connected reporting. But the effort will be highly worthwhile. The benefits include better decision-making, better relationships with investors and regulators, and a better reputation for the business. Most importantly, reporting can move beyond compliance to serve the strategic vision of the company.

About this article

By

Peter Wollmert

EY Global and EY EMEIA Financial Accounting Advisory Leader

Senior Assurance leader. Promoting quality and effectiveness in corporate reporting and the audit. Advocate for the future of the accounting profession. Passionate runner and scuba diver.