As we look back at financial reporting trends in 2022, we can see that there were several significant developments that impacted businesses around the world. One of the biggest trends was the increasing use of technology and data analytics in financial reporting. Companies of all sizes have begun to adopt new tools and platforms to streamline their reporting processes and gain deeper insights into their financial performance. Additionally, there has been a growing focus on sustainability reporting, with businesses increasingly expected to provide information on their environmental, social, and governance practices. Finally, regulatory changes also played a role in shaping financial reporting trends, with new rules and guidelines implemented in various countries and regions. These trends have all had a significant impact on how businesses approach financial reporting and will continue to do so in the coming years.
As we enter 2023, it is important to stay up to date on the latest financial reporting trends to ensure that your business is on track and able to make informed decisions. In this blog post, we will explore six key financial reporting trends that businesses should be aware of in the coming year. From new technologies and data analytics to regulatory changes and sustainability reporting, these trends will have a significant impact on how businesses approach financial reporting in 2023 and beyond. Stay tuned to learn more about these exciting developments and how they may impact your business.
Greater Focus on Digital Reporting using XBRL
Digital reporting gained much ground in the year 2022. In the US, the Senate on December 15 passed the Financial Data Transparency Act, which requires eight major financial regulators to adopt data standards (read XBRL). In the EU, the Corporate Sustainability Reporting Directive (CSRD), which requires about 50,000 EU companies to make available digital non-financial reports to their stakeholders, has become a reality. Non-financial or ESG reporting in the digital format is picking up across geographies, and more action in this area is likely in 2023.
The technology driving digital financial and non-financial reporting is XBRL, or eXtensible Business Reporting Language. Regulators who require companies to submit reports in the digital format provide an XBRL taxonomy – a collection of machine-readable tags used to label or mark up the business information in a document. Digital reporting using the XBRL technology makes business reports more accessible, easier to analyze and compare, and convenient to transmit. Since computers understand the information in XBRL reports, software solutions interact in numerous ways with XBRL data.
Financial Reporting Analytics will be King
The technologies companies have at their disposal to improve financial decision-making have advanced to the point where they process massive amounts of information drawn from internal and external sources. More importantly, there is a lot more data for companies to access and refine to drive insights that improve their operations. This availability of information, coupled with tools that provide artificial intelligence and machine learning capabilities, makes it possible for companies to observe trends, compare themselves with their peers, and optimize their returns vis-a-vis their input costs.
Financial analytics platforms are behind this trend of examining vast amounts of historical and current data to drive business decisions. Most state-of-the-art financial reporting and disclosure management solutions have integrated analytics modules. The best solutions, however, integrate with sources providing machine-readable data reported in the XBRL format. XBRL is a technology driving digital financial and non-financial reporting around the globe.
Most market regulators and central banks prefer the entities under their purview to report financial information in the XBRL format. Corporate XBRL data is readily available, especially in the United States, the United Kingdom, and the European Union. Looking for a financial reporting analytics solution? Try IRIS iConnect®.
Real-time Updates will Trump Periodic Reports
Financial reporting has traditionally been an activity done periodically. Finance teams examine the business transactions and cash flows for every month, quarter, and year to compile reports for the company’s internal and external stakeholders. In a world of real-time information, businesses cannot afford to play by data that does not represent their immediate state of affairs. The need of the hour is a real-time reporting system that helps finance teams record current transactions and observe their most immediate implications. Such real-time data would speed up the business decision-making process. Therefore, it would benefit companies to invest in solutions that facilitate real-time accounting and tools that offer information about peers and help examine sector-wise trends. Going into 2023, companies can upgrade their financial reporting processes to provide stakeholders with current data. Financial and digital reporting solutions like IRIS CARBON® offer integration with a disclosure management module and a business analysis solution so companies can access real-time data from internal and external sources.
Integrated Reports will Grow in Importance
Organizations release reports designed for various purposes. While financial and sustainability reports offer a comprehensive view to specific stakeholders, they do not communicate the business value from a holistic perspective. Integrated reports, meanwhile, are documents that present investors and stakeholders with a helicopter view of how organizations intend to create value. They are not to be confused with combined reports, which merely provide financial and non-financial information in a single, lengthy document. According to the IFRS Foundation, organizations must create integrated reports to communicate how their strategy, governance, performance, and prospects lead to value creation over time. The IFRS Foundation’s International Sustainability Standards Board (ISSB) has consolidated the International Integrated Reporting Council (IIRC), which means the ISSB’s sustainability reporting standards will include integrated reporting principles. With stakeholders increasingly focusing on the non-financial aspects of businesses, the need for integrated reporting will continue to rise in 2023.
Equal Emphasis on Financial & Non-financial Reports
Business stakeholders have realized that financial reporting offers a limited view of an organization’s activities. An organization has more to it than the financial value it attempts to create. Its interactions with the environment and society offer a more holistic picture to stakeholders. Environmental, Social, and Governance (ESG) reporting has made great strides in 2022 with regulators around the world requiring companies to prepare sustainability reports using standards developed by organizations such as the Task Force on Climate-related Financial Disclosures (TCFD) and the European Sustainability Reporting Standards (ESRS). The International Sustainability Standards Board (ISSB) is currently creating standards that may soon be the global baseline framework for sustainability reporting. These developments indicate a change in stakeholder thinking about sustainability. A rapid rise in climate-induced calamities around the world has put the spotlight on a dire need to stem the tide and make efforts to reduce emissions that contribute to global warming. In 2023, the business world will see more action and legislation to limit pollution and prevent business activity that promotes human rights violations, consciously or otherwise.
Cloud-based Solutions will Rule the Roost
Companies have traditionally relied on on-premise software solutions. However, such on-premise solutions or legacy systems are not well suited for remote or hybrid work – a trend that has caught on because of the pandemic. Cloud-based solutions are better suited for financial reporting teams separated by time and place. Such solutions are collaborative or offer features that allow multiple users to work on a single document, with each user having their own specific tasks to complete. Cloud-based solutions have gained wide acceptance because they support remote or hybrid environments, offer greater data security, and maintenance by the software provider. On-premise solutions, on the other hand, require constant maintenance and lesser protection from data security incidents.