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External Reporting

External Reporting

For the latest insights, read our Accelerate 2019 report.

It's time to expand your oversight of external reporting. New trends and reporting directives are placing added expectations on audit committees. These need to be considered before various external reports are shared with outside stakeholders.

Within the annual report itself, securities regulators are placing significant attention on the use of non-GAAP measures in the management's discussion and analysis (MD&A) section and related press releases. In turn, audit committees are being encouraged to increase their focus on these measures and gain more comfort around the definition, use and reconciliation of these non-GAAP measures.

Attention also needs to be paid to new annual report content. This added content is being driven by multiple trends, the first being the emergence of frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. These recommendations call for expanded disclosure of any material financial risks that climate change presents to the company's business model, services, supply chain, and customer base. Such risks could adversely affect access to capital and profitability. While currently voluntary, the recommendations are being studied by regulators including the Canadian Securities Administrators. Additional report content is also being driven by diversity reporting requirements.

The second trend is toward increased discussion of strategy and long term value creation. An example is the UK's Strategic Report requirements and related guidance from the Financial Reporting Council. Although a similar requirement does not yet exist for North American companies, major institutional investors are increasingly demanding expanded disclosures on how reporting issuers are positioned to create and sustain long term value.

There are a growing number of external communications beyond the annual report. These include sustainability and climate change reports, carbon disclosures, and a multitude of responses to investor surveys and questionnaires. There has been a corresponding emergence of an 'alphabet soup' of reporting frameworks, which create challenges to implement and oversee. To that end, a 'Corporate Reporting Dialogue' initiative among standard setters has been established to better align these frameworks.

Navigating these new forms of reporting requires reporting processes and controls beyond the traditional finance domain, and applying additional executive and audit committee oversight. Audit committees are encouraged to revisit the 'status quo' and inquire how this expanded information is being sourced, compiled, and published; and if their current disclosure controls and procedures are aligned with these new expectations.

What should Audit Committees be asking?

  • Is your Committee mandate and the organization's disclosure controls and procedures sufficiently broad to address these expanded forms of reporting?
  • How are expanded disclosures sourced, compiled, and published?
  • How can the audit committee best stay abreast of these rapidly expanding forms of external reporting?