The future of corporate reporting is filled with possibilities. Technology is changing the way we use information and a new paradigm of what matters to whom is evident more and more. This changing landscape provides us with an opportunity to re-think the traditional model of reporting, including a greater focus on how businesses create value over the longer term and understand their wider impacts.
The Financial Reporting Council’s (FRC) Future of Corporate Reporting project aims to stimulate ‘blue-sky’ thinking on the development of a new model for corporate reporting as well as making recommendations for changes to current regulation and practice. The output of the project will be to publish a thought leadership paper for consultation in 2020.
The FRC’s project is about the future and considering corporate reporting holistically. However, it is important to acknowledge that one of the problems with the current reporting model is that the annual report is trying to serve multiple purposes and audiences, and risks serving none adequately. This has been an important consideration in shaping our thinking on a new model.
We frame our thinking on the new model around three recurring themes: communication, accountability and regulation.
Communication
Corporate reporting is a means of communicating information about a company and compliance with regulation should be a minimum. Our project focuses on the development of a hub and spoke model for corporate reporting which aims to improve the accessibility of information. The hub and spokes can be viewed as a network of connected reports within one system.
We are proposing that the hub is a report that provides information on matters that are relevant to the long term value of the company, including both financial and non-financial information (similar in concept to a modified strategic report or integrated report). The aim is for the hub to be concise, focussing on matters that are of strategic importance. Like the annual report, the hub would be subject to regulation including assurance.
The spoke reports could have different purposes and audiences, such as:
- providing detail on information in the hub (eg, divisional information)
- a special purpose report (eg, analysts presentation, gender pay gap report)
- being a location for ‘standing data’ that remains unchanged from year to year (eg, policies)
- an alternative periodic report (eg, half-yearly report)
Existing reports and information have been used to illustrate application of the concepts but the new model may not include all current information content and would need to accommodate future information needs.
Accountability
The current model of financial reporting focuses on the information needs of investors. This project recognises that companies are accountable to a wider range of stakeholders. The project explores the role of non-financial and sustainability reporting as an integral part of corporate reporting by providing transparency on how a company is meeting its wider responsibilities.
Regulation
The regulatory framework provides an essential supporting structure for corporate reporting. Currently, there are a number of regulators setting requirements for different aspects of corporate reporting which creates complexity. As well as considering the longer term changes to the regulatory system that are needed in future, the FRC’s project will consider what improvements can be made to the current regulation focussing on the legislative requirements for the annual report.
About the author
Paul Druckman is chair of the FRC Advisory Group on the Future of Corporate Reporting, Deepa Raval is director of narrative reporting at the FRC.
