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Comprehensive integrated reporting fei article by david phillips mike willis and liv apneseth watson

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Financial executives are responsible for managing a wide range of information regarding organizational …

Financial executives are responsible for managing a wide range of information regarding organizational
strategic objectives, governance, risk and performance. It’s a complex task.


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  • 1. BENEFITS OF Comprehensive Integrated Reporting F Financial executives are responsible grated reports as a means to seek for managing a wide range of infor- new business opportunities, safe- mation regarding organizational guard reputation, maximize compet- strategic objectives, governance, risk itive advantage and mitigate opera- and performance. It’s a complex task. tions risk. Accessing, analyzing, managing This holistic supply chain and communicating the critical approach provides transparent information can be a costly, inflexi- alignment of company strategy with ble and often manual, error-prone underlying business risks, key per- effort requiring a wide range of formance indicators (KPIs), business methods and documents. and risk developments, incentive Due to internal barriers — most programs and other relevant internal notably, the high cost of information and external information. (See the access and reuse — many financial diagram on page 30.) executives often focus more narrow- ly on the information required for Benefits of Integrated regulatory compliance. Unfortu- Reporting nately, managing a business on Those familiar with the Indian para- required regulatory compliance ble about blind men and an elephant information may not be fully might agree it provides a useful par- aligned with creating long-term cor- adigm for many current reporting porate or personal value. processes. In the telling, each man’sFINANCIAL REPORTING Integrated reporting redefines the perspective of the elephant was scope of information relevant to dependent on what part of the ele- strategic corporate objectives and phant they happened to be touching. provides a broader method of For example, its side felt like a wall, accessing, analyzing, managing and its tusk a spear, its leg a tree trunk. communicating strategic informa- Many financial executives cur- tion both internally and externally. rently are faced with similarly nar- Integrated reporting refers to the row perspectives based on distinct integrated representation of a com- information silos or reports, reflect- pany’s performance, in terms of both ing information that is oriented to its financial and nonfinancial results. specific, largely compliance purpose Companies are providing inte- such as financial, tax, management,26 financial executive | march 2011 www.financialexecutives.org © 2011 Financial Executives International | www.financialexecutives.org
  • 2. READ FOR CPE CREDITgovernance or reporting is a more holisticenvironmental. view of information relevant to For many multinationals, the company and its value proposi-information problems go well tion and strategy. As outlined in Onebeyond access to disparate internal Report: Integrated Reporting for a Sus-silos. They include inconsistent defi- tainable Strategy, by Robert G. Ecclesnitions of commonly used terms — and Michael P. Krzus, this approachfull-time equivalent, sick days, promotes a wider perspective of thesquare foot, customer and others. Of information vital to a company’s Bycourse, financial executives are not long-term strategic objectives. As athe only ones translating disparate result, financial executives have standardizingdefinitions into common terms. an opportunity to transform cor- disparate information sources, Further, the ability to understand porate processes and enhanceand act on external market drivers long-term corporate value. financial executives can eliminate(competitive, economic, technologi- Information standardiza- the narrow perspectives of thecal, etc.) is important to managing tion provides new informa-business risks and opportunities. tion-processing capabilities elephant and the blind man parable — The common lack of a compre- that facilitate the more com- and “see” beyond merelyhensive approach to relevant, consis- prehensive integrated report-tent, quality internal and external ing approach yielding benefits, information silos or reports.information obscures the holistic pic- including:ture company financial executives >> Greater access to and transparen- FINANCIAL REPORTINGseek to effectively manage the sus- cy of information from a wide rangetainable performance of their busi- of both internal and external infor- BYness and respective investments. mation sources, to improve analysis DAVID PHILLIPS, Integrated reporting moves in both the short and long term;beyond today’s common “elephant >> More automated and streamlined LIV WATSON ANDview” of individual company finan- assembly and review processes, MIKE WILLIScial attributes toward a more com- eliminating pervasive manualprehensive assessment of company assembly and review systems;value and performance and address- >> More transparency, reuse andes a broad range of financial, value, collaboration on reporting andsocial and strategic disclosures. analytical concepts used by both The primary benefit of integrated internal and external analysts,www.financialexecutives.org financial executive | march 2011 27 © 2011 Financial Executives International | www.financialexecutives.org
  • 3. enhancing process agility; distributors to retailers to consumers into their individually unique analy- >> More relevant information avail- to analysts. sis or integrated report. In this con- able for management and stakehold- Unlike the physical grocery shop- text, integrated reporting is not only er decision analysis of both the short ping processes, standardized busi- a reporting option but rather a new and long term; and ness information is intangible and analytical capability that provides >> Wider collaboration on reporting can be assembled using automated more timely, comprehensive and standards and disclosure concepts processes. If grocery store products effective insights. providing a broader dialogue on were intangible, consumers could reporting standards as suggested by pull their shopping list of products Compliance Migration to the International Integrated Report- directly into their carts without The Internet ing Committee (IIRC) and the World going through the store. Further, the Regulators around the world are Intellectual Capital Initiative (WICI). UPC exposes standardized product migrating their compliance process- information that can be used for a es from paper to the Internet, which An Elephant in the broad range of purposes including: commonly includes a transition Grocery Store >> Standardized definitions for from unstructured, such as html, Financial executives around the product comparisons and analysis; PDF and Word, to structured, stan- world currently work in environ- >> Automated inventory manage- dardized formats (e.g. eXtensible ments that often require significant ment impacting retail pricing, prod- Business Reporting Language, or manual effort to access and repur- uct placement and procurement XBRL) that are designed to enhance pose information from a wide range schedules; both production and consumption of disparate internal enterprise >> Consumer check out; and processes. This Internet compliance resource planning systems, consoli- >> Relationships between products transition facilitates enhancements dation applications and spread- such that consumers can better under- in the reporting process for financial sheets. Internal company reports stand which menu options might be executives, depending on their im- reflect information from their system available or optimized on a particular plementation approach. of origin and are often too narrow or day or within a specific store. Some executives perceive these are manually assembled and thereby (This last example certainly regulatory changes as incremental either too expensive or untimely to would have helped the blind men to requirements and thereby “bolt on” be valuable for decision-making. more comprehensively understand the requirements to the end of their Similar to the blind men in the the elephant parts — not just the one existing compliance processes, thus analogy above, many financial exec- they were touching.) adding cost and time. Others regard utives and their stakeholders can Likewise, the improved access these regulatory changes as oppor- only cost-effectively access partial and reuse enabled by information tunities to “build in” standardiza- information relevant to their analy- standardization can assist financial tion earlier in their processes. As a sis. Limited access is often created executives in more effectively ac - result, they automate and streamline by a range of proprietary informa- cessing, analyzing and reporting of their report assembly and review tion silos, manual report assembly the comprehensive information processes, leading to cost and time processes and disclosures reported strategically relevant to long-term improvements of 25 percent to 50 in content specific documents. company performance and value. percent, or more. Further, common manual report Using standardized information In realizing the benefits of the assembly processes create inherent processes, internal (and potentially built-in implementation approach, opacity for those seeking to more external) consumers can “pull” rele- executives are afforded better access, effectively manage information rele- vant information into their integrat- reuse and analysis of the compre- vant to corporate strategies and ed report from across a wide range hensive information contained with- internal and external compliance of disparate information sources. in a broad range of internal and requirements. Financial executives realizing that external systems. This includes The capability to more effectively they are consumers before they are information relevant to strategic access, manage, analyze and report producers of information are the first objectives, governance, business information is dramatically to benefit. Such a consumer-centric risks and related executive compen- improved by supply chain informa- orientation places a premium on the sation, KPIs and corporate social tion standardization. One standardi- comprehensive nature, context and and market oriented disclosures. zation example — the application of relevance of information for both Similar to how the UPC standard- the Universal Product Code (UPC) internal and external consumers. ized grocery store products to grocery store products — signifi- Regulators, investors, analysts, streamlining inventory and sales cantly enhanced transparency and creditors and companies are capable processes, the XBRL standard applied process improvements for all supply of pulling public company disclo- to a broad range of company systems, chain participants from vendors to sures they deem relevant directly reports and information enhances28 financial executive | march 2011 www.financialexecutives.org © 2011 Financial Executives International | www.financialexecutives.org
  • 4. Reaping the Benefits of Integrated Reporting Ask yourself...access, reuse and analysis by financialexecutives across a broad range of External Reporting Internal Reportingreporting needs. Are key components of what Is too much time spent producing makes my business successful the numbers, rather than gainingSouthwest Airlines: An Inte- missing from our reporting? real insight?grated Reporting Case StudySouthwest Airlines Co., a major Dal- Would I invest in my company based Is reporting flexible enough tolas-based domestic airline, annually on what is presented externally? respond to change?issues the Southwest Airlines OneReport. This integrated report was Is the market value of my company Do we have the market insight andborn of market discussions of indus- a fair reflection of the business? nonfinancial information needed totry issues by the company’s reputa- stay ahead or are we too dependenttion management team, and has on historical, financial information?been developed and enhanced overthe last five years. “We needed to Does the quality of our reporting Do we have transparent perfo-tell our story. It’s not a new story, we make us more vulnerable than mance measures with clearjust haven’t ever told it.” says Mar- peers to a hostile takeover bid? accountability for them?ilee McInnis, Southwest’s communi-cations manager. Does my companys reporting Do we have a complete, timely pic- What was initiated in 2007 as sep- show clear alignment between ture of what’s going on in the busi-arate reports on financial, manage- strategy, remuneration and KPIs? ness financially and operationally?ment and environmental disclosureswas integrated into the One Report Today, every management team needs to be able to put themselves in thein 2009. shoes of a skeptical outsider, such as an investor, a new recruit, a customer “Southwest is a company that or a supplier. If done well, integrated reporting can secure capital andfocuses on a sustainable operation in credit, help win the war for talent and build strong business relationships.every aspect of our business. We area corporate citizen that maintains Source: PwC: Integratedreporting.comcustomer service while still meetingour fiduciary responsibility” saysMarcy Brand, the airlines director of community, among others — into its employee training oucomes and vol-Investor Relations. “Our team has One Report, while also expanding unteerism.made a commitment to communi- and refining the areas to meet stake- Southwest realized benefits fromcate our direction to the market and holder needs. integrated reporting through moreour One Report is a great medium To address some of the incremen- comprehensive and effective infor-for that.” tal shareholder information needs, it mation processes. Focusing on shareholders, em- became clear to company manage-ployees and customers as the ment that they were not going to be Roadmap to Benefitsprimary audience for Southwest’s able gather all of the relevant data or The roadmap to realizing benefitsintegrated report, the company ini- implement the additional human from integrated reporting — whiletially targeted fuel and water use, and financial resources overnight. relatively straight forward — is notissuing the Southwest Environmental Company senior management sup- necessarily a simple one. It requires aStewardship Report. port was critical in addressing the comprehensive approach, including This separate report focused on resource requirements and process coordination across a wide range ofuse, management, recycling of com- changes necessary to collect, analyze business segments, processes, infor-pany resources and the improvements and manage the incremental infor- mation silos and internal groups.made to company infrastructure, mation needed for the Southwest Understanding the corporatesuch as planes, operational and main- integrated report. strategy drivers is an initial step; it’stenance processes and ground In some cases, due to the opacity easy to say but difficult to do. Man-equipment that are designed to opti- of existing processes and systems, agement’s assessment should incor-mize resource usage. temporary manual work-arounds porate core values and the resources In 2009, following a continuous were required to collect and analyze required for delivery. These resourcesimprovement process and dialogue data from the underlying systems. would include critical companywith targeted stakeholders, the com- However, in planning for additional processes; customer, employee, ven-pany integrated various disclosure data, management found that it dor and community attributes; sup-areas — financial, nonfinancial, could incrementally manage and ply chain processes; and market,environmental, suppliers, social and report on important areas, including competitor and other external forces.www.financialexecutives.org financial executive | march 2011 29 © 2011 Financial Executives International | www.financialexecutives.org
  • 5. Integrated Reporting Model hensive range of financial, value, social, environmental and strategic disclosures over long-term periods. This approach aligns the information important in managing sustainable corporate value creation for all stake- holders. As a result, the integrated report provides a clearer more com- plete picture of the company. Standardized information em- powers financial executives and oth- er consumers to more effectively access, manage, analyze and report information they deem relevant. This more transparent environment empowers financial executives to more effectively manage informa- tion relevant to sustainable value creation for all stakeholders. Integrated reporting and infor- mation standardization offers finan- cial executives and their stakehold- Source: PwC, ers the ability to obtain incremental www.corporatereporting.com insights and process enhancements. Realizing these benefits is an oppor- Assessing relevant information motes more seamless exchanges tunity for financial executives to from across these comprehensive across both internal and external sup- enhance their corporate and person- strategic areas is one of the most dif- ply chain information stores, enabling al value propositions. ficult tasks for managers. It requires consumers to pull information they establishing common definitions deem relevant to their specific and D AVID P HILLIPS , CA (David.phillips@ for critical information and poten- particular needs. This source stan- uk.pwc.com), a partner with PwC LLP in tially rethinking the association dardization offers an Internet-styled the U.K., is the firm’s International Corpo- between strategy drivers and the environment of interoperable sys- rate Reporting lead; L IV A. WATSON underlying processes and related tems, facilitating improved informa- (liv@accountability.org) is director of performance metrics. tion access, analysis and reporting Research and Development for AccountA- This often requires a better, more processes. These process enhance- bility in New York; and M IKE W ILLIS , holistic approach to company key ments can lead to: CPA (mike.willis@us.pwc.com), is a part- performance indicators — those that >> Easy information access across all ner with PwC in the U.S. and Chairman are integrated into the company’s relevant systems lowering informa- Emeritus of XBRL International. long-term strategy for value creation tion reuse and systems maintenance across all stakeholders. This assess- costs; To receive CPE for this article visit www.financial executives.org/magazineCPE to complete your review, ment moves beyond traditional >> Consumer-centric reporting and test and evaluation. Instructional method: Self-Study business intelligence and risk man- analysis; Recommended CPE Credits: 1.0 agement approaches. >> Social or collaborative reporting Experience Level: Basic Field of Study: Accounting Traditional information manage- and analysis processes that improve Prerequisites/advance preparation: None Advanced Prep: Reading article ment solutions may not provide the coordination across organizational Financial Executives International (FEI) is regis- tered with the National Association of State agility, scalability and scope to eco- business segments and information Boards of Accountancy (NASBA), as a sponsor nomically permit this more compre- silos; and of continuing professional education on the Na- tional Registry of CPE Sponsors. State boards of account- hensive information management >> Comprehensive assessments of ancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered process. Physically connecting dis- information highly relevant to inte- sponsors may be addressed to the National Registry of CPE Sponsors, 150 Fourth Avenue North, Suite 700, parate information systems creates a grated reporting. Nashville, TN 37219-2417. Web site: www.nasba.org costly and rigid information process- For FEI CPE credits, one credit hour equals 50 min- utes according to NASBA guidelines. Some states boards ing environment that is simply not A More Comprehensive may differ on how many minutes constitute a credit hour. Contact your state board for more information. adequate or agile enough to support Approach Available in all States except those that do not accept both internal and external supply Integrated reporting provides a broad Web-based self-study credits (Florida, Louisiana, Min- nesota, North Carolina, Oklahoma, Oregon, Tennessee). chain information sources. assessment of company value and For more information regarding administrative policies such as complaints, please contact our offices Information standardization pro- performance and addresses a compre- at 973.765.1029.30 financial executive | march 2011 www.financialexecutives.org © 2011 Financial Executives International | www.financialexecutives.org