Key take-aways from discussion with stakeholders on the future of corporate reporting and long-term value creation.
At KPMG we believe that corporate reporting needs further improvement, particularly with regard to the front-end of annual reports. That made us focus our efforts in this field and look for opportunities to contribute to the wider debate. It also resulted in the release of our Extending Horizons study. Upon release we brought together representatives from investors, standard setters, companies, NGOs, supervisory authorities and non-executive board members to have a lively discussion about the results: where would corporate reporting need to change and what should be the role of the different players?
The results show that there is a need for change indeed - and essentially all agree that actions need to be taken. So where from here?
Our Extending Horizons study revealed six key recommendations that we see as important for companies to work on:
Are these indeed the focus areas to address? Are there other concerns? And who should take action?The discussion we held resulted in the following take-aways …
The annual report deserves more attention
In discussing the actual use of annual reports and challenging its value in the current information era, participants confirmed that the annual report plays a relevant role in understanding businesses' strategy, the risks and opportunities, remuneration and sustainability approach.
It was stated also however that current understanding of corporate reporting and long-term value creation is relatively low and shows room for improvement - amongst others with supervisory board members.
The need for convergence
Both for current frameworks as for future reporting it was argued that there are too many frameworks. There is not one single leading framework that covers all relevant aspects of corporate reporting (although there are leading frameworks for specific areas, such as IASB for financial reporting and GRI for ESG reporting). Clearly The Netherlands could not develop such reporting standard on its own given the international playing-field of businesses.
Still, it was argued, we should take on the journey and dedicate time to develop and try on the journey to reporting - rather than waiting for the `one single leading framework'.
The need for forward-looking information
Consensus existed amongst the participants that annual reports contain too much backward-looking information in comparison to forward-looking information. More insight into strategy and indicators that are linked to the strategy and the core business would be welcomed. Also information on sector disruptions, the competitive landscape and the viability of the business model would be of great help for investors.
It was noted that for such information guidance should be provided for reporting such information.
The focus on the real risks
The current risk paragraphs contain long lists of risks. Echoing the findings from our research, there is a need for a focus on the key, material risks.
Also, annual reports seem to have too much focus on risks compared to attention for other information.
It was argued that reporting should also address the key challenges that the world as a whole is facing - such as climate change and other boundaries of the planet, therefore with a long-term view on companies' existence.
Core and more
The annual report appears to have a lot of information in it and is not always sufficiently concise. It was suggested to work on the `core and more' approach as also promoted by Accountancy Europe: to focus the annual report on the core information, whilst providing more detailed information on specific topics in separate (`more') reports.
Importance of the accountants' role
Clearly, the role of the accountants' profession is valued as it provides comfort that the content of the annual report is correct.
At the same time auditors have to move and divide their time differently between the front- and back-end of the annual report, including seeking the next level of assurance.
Auditors are also well-positioned to help (non-executive) boards better understand long-term value creation and related reporting.
It became also clear that all parties acting to some extent already and believe we need further concerted efforts, but many are cautious to step into the space there is to drive this. It is not a `Netherlands-only' issue, so we would need to take internationally coordinated efforts. Also, all parties should be involved to make it successful - so any initiative that would lack full support would not be fully successful.
So where from here. As an accountants' firm, we see and accept the role we should play in moving this forward. Therefore we contribute to the Corporate Reporting Dialogue where eight global standard setters come together. We support the IASB in their efforts to update management commentary guidance. And we participate in international accountants' networks such as Accountancy Europe to help driving the agenda. And, of course, we assist our clients in improving their understanding and taking the journey - with confidence that when parties agree that reporting needs to change, every effort will ultimately get us there.