Financial Reporting Brief - April 2015
Welcome to our Financial Reporting Brief for April, our opportunity to update you on recent developments with our featured article ‘Corporate Reporting – A Broader Horizon’ commenting on the explosion of reporting practice as a natural reaction of the desire investors and other stakeholders have for corporate reporting to change.
Our April review of the first quarter of 2015 comments on continuing progress towards standards in such areas as leases and insurance contracts, continued evolution of Irish GAAP reporting and a review of corporate governance developments, together with a host of other reporting and regulatory measures and developments (download our review here)
Corporate Reporting – A Broader Horizon
The explosion in demand for improved corporate reporting practice is a natural reaction of the desire for things to change – for companies to become more accountable for their impacts on the economy, society and the environment and for value to be created for all stakeholders. However, unacknowledged and unresolved tensions in corporate environmental and natural capital accounting and disclosure practices can produce variation in the quantity and quality of information, which in turn potentially undermines confidence in markets and corporate reporting and the underlying politics.
There is so much going on! Even to mention the more significant areas such as the EU non-Financial Directive, Integrating Reporting, Sustainability Guidelines and the Global Reporting Initiative, the UN Framework and Guiding Principles – and so much more at both global and national level.
In a rapidly changing, unpredictable world-where every company has to build its licence to operate on foundations of trust, and where technology and international communications makes everything visible, leadership and relationships are the only consistent building blocks of success.
Europe Highlights Need for Action
The EU agreed a Directive in 2014 on disclosure of non-financial and diversity information by certain large undertakings and groups. The Directive amends the EU Accounting Directive for those entities. The Directive will have to be adopted into Irish law by the end of 2016, and its requirements will be effective from 2017 onwards. The new rules will apply to some large companies with more than 500 employees, including listed companies, as well as other public interest entities such as banks, insurance companies and other companies that are so designated by the Member States because of their activity, size or employee numbers.
The Directive requires such entities to disclose in their management report information on policies, risks and outcomes as regards environmental matters, social and employee aspects, respect for human rights, anti-corruption and bribery issues, and diversity in the Board of Directors. Diversity policy disclosures will comprise of specific information on the company’s diversity policy in its administrative management and supervisory bodies which is to be disclosed in the corporate governance statement. Information on all aspects of the diversity policy will be required, including age, gender, geographical diversity and educational or professional background.
UN Guiding Principles
Europe is moving forward with governance and reporting requirements. So, what is happening at a more global level? A major development is the publication by the United Nations (UN) on its Guiding Principles Reporting Framework, the first comprehensive guidance for companies to report on human rights issues in line with the United Nations Guiding Principles on Business and Human Rights. The Framework will help companies wanting to improve their reporting on human rights and provides guidance on identifying human rights content for inclusion in an integrated report.
The Reporting Framework empowers investors and other stakeholders to call for essential information about how companies are tackling the salient human rights challenges they face. These are the human rights at risk of the most severe negative impact through the company’s activities and business relationships. There is increasing evidence that risks to human rights frequently converge with risks to business. Where the most severe human rights impacts are concerned, this convergence is particularly strong.
The Reporting Framework puts the corporate responsibility to respect human rights into everyday language; a set of smart straightforward questions to which any company needs to have answers - inside and outside its own walls.
Integrated Reporting – Where To?
In our January article, we commented on ‘Integrated Reporting: Crossing the Chasm’. Developments continue and to quote from a major global business leader – We’ve got to change the dialogue from ‘what we do with the money we make’ – to ‘how do we make the money’ – there is an ethical responsible way to run companies and make money - ‘change the dialogue and that will build the trust’. This underlines the call for a changing approach to corporate behaviour and corporate reporting.
A recent Deloitte publication – ‘A Directors Guide to Integrated Reporting’ points out that fundamentally, integrated reporting is not really about reporting at all. It is about integrated thinking, responsible business behaviours and innovation - and telling it like it is! In practice, integrated reporting asks the right questions – the difficult ones: how do you define measures of success for each of the resources and relationships in the business model? What are the inter-dependencies and trade-offs between them that, over time, influence a business’s ability to create value? What is your approach to assessing linkages between your strategy, activities, material capital inputs and your performance?
In this context, four sustainability guides have been published by the Accounting for Sustainability Project (A4S), a network which brings together a select group of leading CFOs from large European businesses seeking to embed the management of environmental and social issues into business processes and strategy. Each guide is supported by case studies from network members.
The guides are –
- Natural and social capital accounting
- Enhancing investor engagement
- Managing future uncertainty
- Capex – capital investment appraisal processes
The Global Reporting Initiative (GRI)
The GRI promotes the use of sustainability reporting as a way for organisations to become more sustainable and contribute to sustainable development. GRI’s mission is to make sustainability reporting standard practice. GRI produces free sustainability reporting guidelines. GRI is an international not-for-profit, network based organisation. Its activity involves thousands of professionals and organisations from many sectors, constituencies and regions.
In recent months a number of initiatives have been taken by GRI including:
- Making Headway in Europe – a new linkage document that shows how companies can use GRI’s G4 Guidelines to assist them to comply with the European Directive on disclosure of non-financial and diversity information. The linkage document specifies how G4 can be used to gather information, and formulate responses, to each element of the European Directive.
- The GRI has published ‘Linking GRI and CDP' – How are GRI’s G4 Guidelines and CDP’s 2015 Climate Change questions aligned? The Guidance reveals how the Guidelines and Questions are aligned so that duplication of disclosure efforts can be avoided, which will improve the consistency and comparability of environmental data.
- The GRI has also published ‘Defining Materiality: What Matters to Reporters and Investors’. The research report shows that there is an overall high degree of overlap between the topics considered material by reporting organisations and those considered material by investors.
- The GRI and the Fundación ONCE, the leading organisation of the European network for corporate social responsibility and disability, have jointly published ‘Disability in Sustainability Reporting’, a guide to help organisations communicate their commitment to respecting and promoting the rights of people with disabilities.
An increasing number the of the Boards and Chief Executives of major companies are espousing an overall purpose for their business that is distinct from the profit motive. This is in an attempt to demonstrate to their shareholders that their enterprise is a force for good that is contributing to society, and that is developing strategies, actions and communications by reference to a sense of purpose for the economy, society and the environment. A focus on the purely financial is no longer enough. The development of sustainable capital in the long term is the overarching objective.
It is incumbent on all to maintain awareness of these developments. The ability to stay up to date with a responsible agenda in corporate reporting is key to attracting and maintaining the loyalty of investors and other stakeholders.
Whats new - Monthly reporting pack
Irish/UK GAAP/GAAS and related developments
IFRS & Related Developments
Regulatory & Related Developments
- ESMA publishes report on the activities of accounting enforcers and their findings within the EU in 2014
Financial Reporting Brief
- March 2015: Impairment losses – Improved recognition?
- February 2015: The Challenge of Transition
- Quarterly Financial Reporting Brief: January 2015
- January 2015: Integrated Reporting – crossing the chasm
- December 2014: Clear and concise reporting – achievable?
- November 2014: Supervisory authorities - fundamental to consistent reporting
- Quarterly Financial Reporting Brief: October 2014
- October 2014: Group reporting – A way forward
- September 2014: The Financial Reporting Lab – An experiment that works?
- August 2014: Financial Instruments – Accounting we can all understand?
- July 2014: Standards – the current state of play
- Quarterly Financial Reporting Brief: July 2014
- June 2014: Revenue – getting the top line right
- May 2014: The quest for improved disclosure
- Quarterly Financial Reporting Brief: April 2014
- April 2014: Sustainable investment – accounting a concern?
- Financial Reporting Brief special edition (March 2014): FRS 103 Insurance Contracts
- March 2014 - Annual reports – Achieving their goal?