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ENHANCED BUSINESS REPORTING
(A Technology Driven Solution)
FCM Conference
Alan AndersonSenior Vice President
AICPA
Change in Mind-SetChange in Mind-Set
Historical Financial Statements
Enhanced Business Reporting
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
Past FuturePresent
Historical Financial Statements
Enhanced Business Reporting
Lagging indicators…• One size fits all
(GAAP)• Ignores nonfinancial
measures• Reports results of past
decisions
Leading indicators…• Tied to mission,
vision and values• Tied to factors
critical to success• Moves decision
criteria to forefront
Past FuturePresent
Change in Mind-SetChange in Mind-Set
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 MAPActions
Required qualitative characteristics
of financial and business information
Relevance• Timeliness• Predictive value• Validation of expectations
Reliability• Measurability• Completeness
Neutrality• Unbiased
Comparability• Industry peers• Period-to-period
Understandability• Clear• Coherent• Jargon-free
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
Financial & 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)
Understandable Disclosures
• SEC plain-English
• VMRC
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
System Reliability
Data assurance• Audit of financial statements
– Close expectation gap
• SSAE 10 or ISAE 100– XBRL data tags– Footnote terminology related to XBRL
Systems/process assurance• Examination of S-O Act §404 assertion
• SSAE 10 or ISAE 100– e.g. SysTrust
• Process-based– KPIs– Fwd-looking info
• Hybrid - Data (where suitable criteria exist) or process
– EH&S– Social– Risks/ERM– Corporate governance
Continuous assurance• Continuous audit process using embedded software agents
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 Corporate AccountabilityAccountabilityPublic Trust- 3 ElementsPublic Trust- 3 Elements
PUBLICTRUST
Spirit ofTransparency
People ofIntegrity
Culture ofAccountability
“We need to move towards “Principles Based Thinking”, away from more rules” …David Weinstein, EVP Fidelity Investments
Element Map:Systems Reliability
• Data assurance– Audit of financial statements– Close expectation gap
• SSAE 10 or ISAE 100– XBRL data tags– Footnote terminology related to
XBRL
• Systems/process assurance• Examination of S-O Act
§404 assertion
• SSAE 10 or ISAE 100– e.g. SysTrust
• Process-based– KPIs– Fwd-looking info
• Hybrid - Data (where suitable criteria exist) or process
– EH&S– Social– Risks/ERM– Corporate governance
• Continuous assurance– Continuous audit process
using embedded software agents
Systems ReliabilitySystems Reliability
For Example- -For Example- -
The Real Time Economy
•Process Acceleration
•Sensors
•Dashboards
•ERPSs
•The Information bus (XML –XBRL)
•System Integration
•Re-engineering
Monitoring and Control Platform
FinancialAudit
OtherAssurance
Enterprise Risk Mgmt
Management Control ProcessesAssurance Processes
Other hybrid ProcessesShopFloorHuman
Capital
Cost
IT
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 MeasuresFor Example - -For Example - -
Forecasted Operating Data &
Performance Measures
Forecasted Financial Data
High-Level Data and Performance
Measures
Financial Statements and
Related Disclosures
Forecasted by Users
Forecasted by Users
Operating Financial
Linkage
Linkage
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 DisseminationInformation DisseminationThe Common Platform: XBRLThe Common Platform: XBRL
The Reporting Supply Chain
ExternalFinancialReporting
BusinessOperations
InternalFinancialReporting
Investmentand Lending
AnalysisProcessesProcesses
ParticipantsParticipants
AuditorsTradingPartners
Investors
FinancialPublishersand Data
Aggregators
Regulators
XBRL forRegulatory Filings
XBRL for AuditSchedules
XBRL forCredit Filings
XBRL for BusinessEvent Reporting
Software Vendors
ManagementAccountants
Companies
What
Element Map:Understandable Disclosures
• SEC plain-English
• VMRC
• Much more to be done here!
Understandable DisclosuresUnderstandable Disclosures
Plain English ?Plain English ?
Current Situation:Greek to the Average Person(Difficult to Understand)
Transform
Future State:Easy to Understand English
Understandable DisclosuresSpirit of TransparencySpirit of Transparency
Corporations have an obligation to providewillingly to shareholders and other stakeholdersthe information needed to make decisions.
The Three-Tier Model of Corporate Transparency
Tier OneGlobally Generally Accepted Accounting Principles
Tier TwoIndustry Based Standards
Tier ThreeCompany
Specific Info
Next Steps in Moving Forward
MISSION: To collaborate with
investors, creditors,
regulators, management, &
other stakeholders to improve the
quality & transparency of
information used for decision-making
I: Identification of key
stakeholders whose
collaborative involvement is
critical to successful
development & implementation
II: Overarching goal of making
better information available to investors & creditors,
helping them to see
organizations through the eyes of management
Special Committee on Enhanced Business Reporting
Customers of Enhanced Customers of Enhanced Business ReportingBusiness Reporting
Employees
Management
Auditors
Academics
Regulators
Standard Setters
Investors and Creditors
Customers Suppliers
Competitors
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 Building upon the FoundationFoundation
Historical Financial Statements
Enhanced Business Reporting
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
Online, Real-time, Transparent, and Forward-Looking
UpStreamValue Chain
DownStreamValue Chain
Insider
Trading OthersGLTransactions
Exogenous Data SourcesExogenous Data Sources
Investors
External Reporting
Regulators Creditors LendersTax Website
Performance Measures
Performance Measures
Monitoring Control and Assurance
Reporting standards
On Demand -Aggregation/Benchmarking Layer
Questions?
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