Does corporate reporting need a culture shock?

Changing the culture and mindset within an organization can help drive a more transparent corporate reporting agenda. 

Organizations recognize that there is a demand for corporate reporting to be more transparent. They also understand the key role it plays in telling their value-creation story to investors and how important it is to earn the trust of investors and other stakeholders.

To push this transparency agenda, a wider shift in attitudes is sought towards more forward-looking reporting based on a balance of financial and nonfinancial information. In turn, this may require changes not only to frameworks and practices, but also to mindset and culture. 

To achieve this, organizations should adopt a new culture and mindset regarding the information they share about themselves – a culture based on openness, authenticity and accountability. 

Embracing the role of culture in corporate reporting, finance leaders can provide the transparency that investors and other stakeholders demand, building a new era of trust based on credible, authentic, accountable and open corporate reporting. 

These insights into how reporting should change are drawn from findings from the 2019 EY Global Financial Accounting and Advisory Services (FAAS) corporate reporting survey. You can also explore the data behind the survey, and view and compare findings across countries and industries. 

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Chapter 1

Creating more open and accountable reporting to win stakeholder trust

Transparent financial and nonfinancial reporting remain critical to the continued relevance of corporate reporting.

The research shows that transparent financial and nonfinancial reporting remain critical to the continued relevance of corporate reporting, with 74% of finance leaders surveyed saying investors increasingly use nonfinancial information in their decision-making and 76% saying that there is increasing societal pressure to be more transparent. At the same time corporate reporting is also facing increasing regulatory scrutiny in a number of markets, with legislators asking if today’s reporting models are fit for purpose. 

Stakeholders expect greater transparency

74%

of finance leaders say that investors increasingly use nonfinancial information in their decision-making.

Although quantitative nonfinancial reporting information is seen as the foundation of greater transparency, a significant number of organizations do not include the data as part of their corporate reports. For example, while there is progress in the number of large organizations providing quantifiable KPIs in some areas, only 37% provide KPIs on culture.

To address these demands, finance teams should prioritize:

Driving an open and accountable enterprise culture

Finance leaders believe their teams can play a leading role in the wider culture of the organization, capitalizing on the credibility and skills of teams. When asked how finance can support and reinforce a healthy corporate culture, the fact that finance is “focused on transparency and openness” emerged as the number one quality. To help create that transparency, it should be a priority to set out and carefully communicate clear expectations around values and behaviors.

Clarifying the finance team's role in nonfinancial reporting

Clarifying the finance team’s role in nonfinancial reporting should help deliver credible and trusted information to stakeholders. While transparency and openness are key to giving stakeholders the information they want, that information should be credible and trusted. Here finance leaders can bring a range of skills, such as data analytics and establishing controls to create that trust in the nonfinancial information.

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Chapter 2

Closing the culture reporting disconnect

Culture is seen as a core element in growing and protecting enterprise value.

Finance leaders see culture as a core element in growing and protecting enterprise value. Despite only one in three large organizations reporting quantifiable KPIs on culture, over three-quarters of them say that “investors increasingly want more insight into company culture.”

Investors hungry for culture insight

79%

of finance leaders say that “investors increasingly want more insight into company culture.”

The price that organizations pay for a cultural lapse often makes front-page news. This is reflected by the survey which shows that finance leaders are very clear that culture is not a “soft” issue that has little to do with the value of their organizations, with 83% saying “a healthy corporate culture where values or behaviors are consistently lived is critical to building trust” and 81% say it helps reduce risk.

When looking to address reporting on culture, organizations should consider:

Utilizing data and defining culture reporting KPIs

Utilizing the large volumes of data they already produce and translate this into trusted culture reporting KPIs enables increased reporting on culture. 79% of the finance leaders surveyed say that they have the data today to provide cultural insight, however, reporting this data is not business as usual for most organizations. For example, just over half report on employee engagement today and less than half report on performance around whistle blowing or noncompliance with the local corporate governance code.

However, they are concerned over controls and data quality of culture-related data and whether this will meet the high expectations of stakeholders. This will likely require a comprehensive approach, from finding or building the relevant skills to putting controls in place.

Shifting the culture in the finance team

Shifting the culture in the finance team enables them to be motivated and encouraged to engage and communicate with stakeholders, and ultimately be more transparent in their approach. According to this research 71% of finance leaders say that supporting increasing transparency requires a change in the culture of their finance team. A part of this problem is that many of them believe that their teams are perceived as being risk-averse and focused on past performance. Of course, changing culture is not an easy process but finance leaders should articulate the desired behaviors and values and demonstrate them themselves.

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Chapter 3

Building trust into data analytics and artificial intelligence

Organizations should address objectivity and credibility issues so that nonfinancial data is as trusted as financial data.

With both financial and nonfinancial information key to transparency, nonfinancial data should be as credible and trusted as financial data. However, there are several challenges faced by finance leaders when developing a trusted approach to nonfinancial data. 

A key challenge is the ability to exploit nonfinancial data while also managing any associated risks, with concerns around data protection privacy and compliance. At the same time, there is also concern regarding the trust in and the objectivity and credibility of the data behind the disclosures, particularly relating to the use of robotic process automation (RPA) and artificial intelligence (AI) in the capture and analysis of the data. This is particularly relevant given that 60% of group CFOs say that the quality of finance data produced by AI cannot be trusted in the same way as data from existing finance systems.

To build trust in data analytics and AI, there are two priorities:

Implementing advanced tools to gather and analyze large amounts of data

While RPA can support onerous and time-consuming tasks to be completed more efficiently and effectively and AI may give reporting a new depth of insight, there is still some way to go before most finance teams have moved beyond isolated pilots and begin deploying at scale. Only 30% of financial controllers surveyed said they have scaled RPA for automating data collection for corporate reporting less than 30% are using AI to drive advanced analytics and data-driven insight.

To drive deployment finance leaders should carefully manage any risks.

Providing confidence that disclosures resulting from advanced systems are credible and trusted

Many of today’s existing finance systems have trust and controls built into them, however AI does not enjoy that same level of trust. Senior finance leaders have significant concerns with 60% surveyed saying “the quality of finance data produced by AI cannot be trusted in the same way as our existing finance systems.” In addition, group CFOs are concerned about attendant risks.

Building trust into artificial intelligence

60%

of group CFOs say that the quality of finance data produced by AI cannot be trusted in the same way as data from existing finance systems.

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Chapter 4

The way forward

A healthy culture is key to growing value and a harmful culture poses significant risk to value.

The implications of culture for enterprise value could not be clearer: a healthy culture is key to growing value and a harmful culture poses significant risk to value. Culture will play an increasingly important role in corporate reporting in two ways: first, with finance teams performing a central role in driving transparent reporting, creating an open and accountable culture that genuinely engages with investors and meets fast-changing reporting demands. Second, providing stakeholders with meaningful, credible and relevant data-driven insight into the organization’s culture, demonstrating the link between culture and performance value.

There are three action areas that will likely be critical to driving a culture of openness and accountability in corporate reporting:

  1. Place a robust approach to culture reporting
  2. Change the talent mix to drive finance culture change and overcome resistance
  3. Build trust and ethics into AI

Summary

Organizations recognize the demand for corporate reporting to be more transparent. To push this transparency agenda, a wider shift in attitudes is sought towards a more forward-looking reporting based on a balance of financial and nonfinancial information.

To achieve this, organizations should adopt a new culture and mindset regarding the information they share about themselves. This includes: creating more open and accountable reporting to win stakeholder trust, closing the culture reporting disconnect, and building trust into data analytics and artificial intelligence.

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.