The Evolution of Corporate Reporting – A Primer

April 18, 2022by Team IRIS CARBON

Corporate reporting involves the disclosure of material information by business entities based on the operations and transactions they undertake. The audience for whom such disclosure is intended includes regulatory authorities, banks, investors, analysts, financial journalists, academics, and others. Corporate reports include financial reports, sustainability reports, integrated reports, press releases, and any other report through which a company places material information in the public domain.

Over the years, the scope of corporate reporting has evolved. For instance, the stakeholders of business information, some of whom we have mentioned above, have begun to hold companies responsible for not just the financial and tangible aspects of their activities but also the nonfinancial and intangible.

The Covid-19 pandemic, which left economies reeling from the effects of large-scale lockdowns, and an increase in climate-related calamities – including massive floods in Europe, the US, China, and elsewhere in 2021 – have caused alarm bells to ring about unbridled human interference with natural processes. Investors, mainly, have become more demanding of information about the effect companies’ activities have on the environment within which they operate. In a number of countries, governments have begun to phase-in mandatory climate-risk or ESG disclosure requirements. This new focus on sustainability or non-financial information is causing corporate reporting to evolve at a fast pace. And there are other aspects to this evolution, too.

In this article, we examine some of the aspects that represent the evolution of corporate reporting to its present form and onwards.

From Manual Processes to Software

The use of software has caused corporate reporting processes to evolve. What started off as laborious processes involving a number of spreadsheets and manual data entry has now evolved into cloud-based, collaborative workspaces that simplify dealing with the data a company needs to report. Financial and sustainability reporting teams do not need to spend hours doing repetitive and tedious tasks when their time is better spent analyzing data and ensuring that the company, through its numbers and narrative, conveys the story it wants its stakeholders to know. The question every CFO or finance office professional needs to ask oneself is if their organization is keeping up with the times as far as using technology for corporate reporting is concerned. The use of software for corporate reporting has been seen to improve the transparency and quality of disclosures and improve stakeholder engagement.

From Static Formats to Digital Reporting

There is a difference in how corporate reports are accessed now. Reports in printed form, or in static formats that allow no user interaction, have given way to machine-readable reports in the eXtensible Business Reporting Language (XBRL) format. XBRL and the more advanced Inline XBRL allow companies to prepare corporate reports that can be pulled onto spreadsheets for easier analysis. Inline XBRL helps companies create reports that are both human-readable and machine-readable.

XBRL/iXBRL reporting mandates in various jurisdictions such as the US, EU, UK, and elsewhere ensure that public companies furnish information that can be easily analyzed and compared, leading to quicker and more effective decision-making by various stakeholders. However, companies need not wait for a digital reporting mandate for exploring the benefits of XBRL and iXBRL. The XBRL format can be used to bring structure to corporate information through the labeling of individual data points with digital definitions found in a taxonomy. A taxonomy is a collection of such labels or digital definitions.

More Detailed and Transparent Reports

From reports that were limited to disclosing financial information to those including non-financial information and narrative designed to give a holistic view of business activities, corporate reporting has come a long way. The use of digital reporting formats such as XBRL/iXBRL is helping companies create error-free reports. XBRL validators help ensure that corporate reports do not have errors in calculations or totaling at the very least. Validation checks also ensure that digital reports are technically accurate so that the users of those reports are assured that the information at their disposal is of high quality.

Transparent and high-quality corporate reports which provide investors and other stakeholders with a clear picture of an organization in terms of its financial and sustainability position can help improve its cost of capital and open up cheaper credit options.

Conclusion: Towards Integrated Reporting

Over the last two years, there has been an effort by companies and their stakeholders alike to increase the focus of corporate disclosure on the non-financial aspects of business activity. The emphasis is both on the effect companies’ actions have on the environment and society as well as on the effect that the external environment and society have on companies’ operations. The focus of corporate disclosure is now shifting from information that is purely financial and profit-led to that which is designed to provide a holistic view of operations and transactions to all the stakeholders concerned.

Integrated reporting that “brings together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates” is the way forward. That would help stakeholders understand how a business entity intends to create value in the present and the future.

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