If it seems financial disclosures have gotten lengthier in recent years, it’s because they have.
The length of the average financial report published by large U.S.-based companies has increased almost 50% in the last ten years, Wes Bricker, vice chair - U.S. trust solutions co-leader, at PwC, told CFO Dive.
Increased disclosure requirements covering revenue recognition, fair value computations and new lease accounting standards, among other things, are a big driver of lengthier reports.
The move from paper to digital XBRL — eXtensible Business Reporting Language — is another factor. The standards-based method of sharing business information between systems, now required by the Securities and Exchange Commission, enables public companies to tag data in their financial reports and increase transparency and accessibility by using an agreed-upon format.
But that’s just part of what’s happening. Driven in large part by stakeholder demands, particularly around environmental, social and governance (ESG) performance, companies are expected to include an increasing amount of non-financial information in their reports.
“It can be complex,” says Bricker, a former SEC chief accountant.
Some 90% of S&P 500 companies now put out sustainability reports, he says, and that’s a trend that will only increase. He predicted for the rest of this year and into 2022 ESG disclosures will be a priority for regulators, investors, and the business community.
Opportunity to shine
Although this adds to the finance function’s workload, it creates an opportunity for CFOs to showcase what their team is good at: integrating a diverse mix of data into a single, compelling narrative. In short, it’s a chance “to shine,” he says.
This puts finance at the core of their organization’s effort to build more trust in society, he says.
Although this is a positive trend, it falls on CFOs to tell the story right, which means knowing what to include in and what to leave out of reports.
A recent PwC report warns too many companies are at risk of overkill in their reporting.
“In an attempt to meet the increasingly stringent demands placed by reporting standards and regulators, entities are putting absolutely everything into their reports that might be relevant for compliance,” the report says.
But that could backfire by making financial statements increasingly diffuse and disconnected and too hard for readers to get the relevant information.
Smart approach
The size of the financial reports isn’t as important as the content, says Rob Tockman, partner and chief accountant at KPMG US.
What a CFO needs to do, he says, is make sure the reports are giving the important information that stakeholders need, from regulators to investors.
Those needs regularly change, says Tockman, as people and institutions relying on the reports look for different information as companies evolve.
In rethinking financial statements, he says, look to streamline the reports by eliminating outdated information and information that has been repeated in company documents time and time again for five and 10 years that may no longer be relevant.
Focus on what’s materially important to the stakeholders, the KPMG specialist says: “Rethink each and every time what information remains relevant.”
