Transcript Document
ENHANCED BUSINESS REPORTING (A Technology Driven Solution) FCM Conference Alan Anderson Senior Vice President AICPA Change in Mind-Set Historical Financial Statements Past Lagging indicators… • Periodic • Historical • Cost-basis • Financial only • Statements • Looking backward Enhanced Business Reporting Present Future Leading indicators… • On-demand • Real-time/future • Value-basis • Comprehensive • Custom reports • Looking forward Change in Mind-Set Historical Financial Statements Past Enhanced Business Reporting Present Lagging indicators… • One size fits all (GAAP) • Ignores nonfinancial measures • Reports results of past decisions Future Leading indicators… • Tied to mission, vision and values • Tied to factors critical to success • Moves decision criteria to forefront Why? • The current reporting model is no longer sufficient. – Not timely – its after the fact news. – Not informative enough. – Ignores many factors of performance. • So far, calls for change and some action. • Now it’s time for coordinated action. Recommendations are Good but ACTION is better! We Must Build Upon the Foundation to Chart the Path for The Future by: Enhancing Business Reporting ENHANCED BUSINESS REPORTING ELEMENTS CONVERGENCE TO “NEAR REAL TIME” SCALABLE ELEMENT MAP Actions Corporate Accountability • S-O Act §404 internal control • Environmental, Health & Safety (EHS) e.g. Global Reporting Initiative • Social responsibility e.g. AccountAbility 8000 • Risk reporting e.g. COSO Enterprise risk management • Corporate governance e.g. ISS Corporate Governance Quotient System Reliability Financial & NonInformation Financial Dissemination Data assurance • Audit of financial statements Measures • XBRL – Close expectation gap Understandable Disclosures • SEC plain-English • US GAAP/SEC financial • Customizable by users & • VMRC • SSAE 10 or ISAE 100 statements – XBRL data tags flexible reporting by CPA – Footnote terminology related – Capital markets • Non-financial KPIs to XBRL – Debt markets – Customer satisfaction – Board of directors – Customer retention Systems/process assurance – Management – Market share • Examination of S-O Act §404 – Product defects – Regulators assertion – Employee training – Employees – Employee satisfaction • SSAE 10 or ISAE 100 – Customers – Patents held – e.g. SysTrust – Suppliers – R&D spending – NGOs – New product pipeline • Process-based – Costs per transaction – KPIs • Near real-time – Industry benchmarking – Fwd-looking info – Revenue per… customer, square foot, ton-mile… Required qualitative characteristics • Hybrid - Data (where suitable criteria exist) or process of financial and business information • Forward-looking information, – EH&S – Social NOT prospective financial Relevance Comparability • Timeliness • Industry peers – Risks/ERM statements • Predictive value • Period-to-period – Corporate governance • Validation of expectations • Value measurement Continuous assurance reporting • Continuous audit process using collaborative (VMRC) embedded software agents Reliability • Measurability • Completeness Neutrality • Unbiased Understandability • Clear • Coherent • Jargon-free Element Map: Corporate Accountability • S-O Act §404 internal control • Environmental, Health & Safety (EHS) e.g. Global Reporting Initiative • Social responsibility e.g. Accountability 8000 • Risk reporting e.g. COSO Enterprise risk management • Corporate governance e.g. ISS Corporate Governance Quotient Corporate Accountability Public Trust- 3 Elements Spirit of Culture of Transparency PUBLIC Accountability TRUST “We need to move towards “Principles Based Thinking”, away from more rules” …David Weinstein, EVP Fidelity Investments People of Integrity Element Map: Systems Reliability • Data assurance – Audit of financial statements – Close expectation gap • Process-based – KPIs – Fwd-looking info • SSAE 10 or ISAE 100 – XBRL data tags – Footnote terminology related to XBRL • • • Systems/process assurance Examination of S-O Act §404 assertion Hybrid - Data (where suitable criteria exist) or process – EH&S – Social – Risks/ERM – Corporate governance • Continuous assurance – Continuous audit process using embedded software agents • SSAE 10 or ISAE 100 – e.g. SysTrust Systems Reliability For Example- •Process Acceleration •Sensors The Real Time Economy •Dashboards •ERPSs •The Information bus (XML – XBRL) •System Integration •Re-engineering Monitoring and Control Platform Assurance Processes Financial Audit Other Assurance Enterprise Risk Mgmt Management Control Processes IT Human Cost Capital Other hybrid Processes Shop Floor Element Map: Financial and Non Financial Measures • US GAAP/SEC financial statements • Non-financial KPIs – Customer satisfaction – Customer retention – Market share – Product defects – Employee training – Employee satisfaction – Patents held – R&D spending – New product pipeline – Costs per transaction – Industry benchmarking – Revenue per… customer, square foot, ton-mile • Forward-looking information, NOT prospective financial statements • Value measurement reporting collaborative (VMRC) Financial & Non Financial Measures For Example - - Operating Forecasted Operating Data & Performance Measures Financial Linkage Forecasted by Users High-Level Data and Performance Measures Forecasted Financial Data Forecasted by Users Linkage Financial Statements and Related Disclosures Element Map: Information Dissemination • XBRL • Customizable by users & flexible reporting by CPA – – – – – – – – – Capital markets Debt markets Board of directors Management Regulators Employees Customers Suppliers NGOs • Near Real Time Information Dissemination The Common Platform: XBRL The Reporting Supply Chain XBRL for Regulatory Filings Processes Business Operations XBRL for Business Event Reporting Internal Financial Reporting External Financial Reporting XBRL for Audit Schedules XBRL for Credit Filings Financial Publishers and Data Aggregators Companies Participants Trading Partners Investment and Lending Analysis Management Accountants Auditors Software Vendors Regulators Investors Wh Element Map: Understandable Disclosures • SEC plain-English • VMRC • Much more to be done here! Understandable Disclosures Plain English ? Transform Current Situation: Greek to the Average Person (Difficult to Understand) Future State: Easy to Understand English Understandable Disclosures Spirit of Transparency Corporations have an obligation to provide willingly to shareholders and other stakeholders the information needed to make decisions. Tier Three Company Specific Info Tier Two Industry Based Standards Tier One Globally Generally Accepted Accounting Principles The Three-Tier Model of Corporate Transparency Next Steps in Moving Forward I: Identification of key stakeholders whose collaborative involvement is critical to successful development & implementation Special Committee on Enhanced Business Reporting MISSION: To collaborate with investors, creditors, regulators, management, & other stakeholders to improve the quality & transparency of information used for decision-making II: Overarching goal of making better information available to investors & creditors, helping them to see organizations through the eyes of management Customers of Enhanced Business Reporting Employees Management Academics Customers Suppliers Investors and Creditors Auditors Competitors Regulators Standard Setters THE END GAME IMPLEMENTATION of enhanced business reporting through collaboration with, commitment from, & support of: SEC FASB Banks and other users Public Company Accounting Oversight Board (PCAOB) Large Fund Managers (e.g., Vanguard, TIAA-CREF) Council of Institutional Investors FEI Think Tanks (e.g., Brookings) How is this going to get accomplished? • The AICPA has established a Special Committee on Enhanced Business to reporting to Concurrently: – Identify the migration path needed to get it done – Get Companies to Pilot ideas And – Build consensus and support from users Building upon the Foundation Historical Financial Statements Enhanced Business Reporting Online, Real-time, Transparent, and Forward-Looking Lagging indicators… • Periodic • Historical • Cost-basis • Financial only • Statements • Looking backward Leading indicators… • On-demand • Real-time/future • Value-basis • Comprehensive • Custom reports • Looking forward Tax Regulators Investors Creditors Lenders Website External Reporting On Demand -Aggregation/Benchmarking Layer Reporting standards Monitoring Control and Assurance Performance Measures Transactions Up Stream Value Chain Down Stream Value Chain GL Exogenous Data Sources Insider Trading Performance Measures Others Exogenous Data Sources Questions?