Transparency, accountability, and efficient sharing of information are the primary factors that have shaped the changing landscape of corporate reporting and disclosure management. The entire reporting and disclosure management relies on a well-defined process, clear communication channels, and robust technology solutions. All this helps ensure accuracy, consistency, and timely delivery of information to relevant stakeholders.
The corporate reporting and disclosure management landscape has significantly evolved. Some of the contributing factors for these changes in scope and scale have been due to regulatory requirements, evolving stakeholder needs, and technological advancements. Let’s explore each of these key aspects.:
Expansion of audience: The audience that corporate reports and disclosures cater to has diversified over the years to include society, impact investors, and other stakeholders.
Increased regulatory requirements: Regulations such as the European Securities and Markets Authority (ESMA), the United States Securities and Exchange Commission (SEC), and the Canadian Securities Exchange (CSE) ensure that information provided by business entities is more integrated and comprehensive.
Non-financial reporting: The inclusion of non-financial reporting, such as environmental, social, and governance (ESG) disclosures, has contributed to the changing landscape.
Technological advancements: With technology becoming the central helix of most business processes, reporting and disclosures have not remained untouched. Technology has streamlined processes, improved efficiency, and enabled better collaboration..
Alignment and harmonization: As we discussed in the above point, reporting and disclosures are moving toward becoming more integrated and comprehensive, there is greater alignment, harmonization, and regulation of reporting standards, driving closer coordination across functions within companies.
Increased transparency and communication: Stakeholders are demanding greater transparency and communication in their transactions with business entities. Along with more transparency, they are looking at reports and disclosures as empowerment tools to have better participation in business decisions.
These changes propel the need for enhanced and robust corporate reporting and disclosure management processes, ensuring greater transparency, accountability, and efficient communication with stakeholders.
Disclosure Management and its importance in the new era of reporting
As discussed above, corporate reporting has expanded in its nature, content, audience, and overall purpose. Along with those changes, it has also exposed itself to external factors like dynamic capital markets across geos and jurisdictions, socio-political changes, climate crisis, and in recent times wars, unrest, and migration and displacement caused by them.
These factors can affect the financial and non-financial performance of a company, which may require additional disclosures to stakeholders. For example, a company may need to disclose the impact of a natural disaster on its operations, supply chain, and financial performance. Similarly, a company may need to disclose the impact of war or political instability on its operations and financial performance. People displacement and migration can also impact a company’s operations, supply chain, and workforce, which may require additional disclosures.
It is safe to assume that in this new era of increased transparency in corporate reporting and disclosures, there is an urgent need for effective disclosure management to ensure transparency and accountability to all stakeholders, including investors, regulators, and employees.
Key Drivers of the New Era of Disclosure Management
Technological tools and automation are the key drivers for the above-discussed changes because of their adoption and ease of usage. But there are other factors as well that have led to the adoption of reports and disclosure management tools.
Regulatory compliance: The increasing need to comply with regulatory bodies is a major driver of the disclosure management market. Example- This year on July 26, 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents on an annual basis containing material information regarding their cybersecurity risk management, strategy, and governance.
Globalization of businesses: As businesses expand globally, the need for effective disclosure management becomes more critical. SEC’s financial reporting manual underwent the most recent changes a year ago in Dec of 2022.
Also, look at MiFID II and MiFIR market structure-related questions and answers updated by ESMA in October of 2023.
Non-financial reporting: The growing importance of non-financial reporting, such as environmental and social impact reporting, is driving the demand for disclosure management solutions. ESMA has issued a Sustainable Finance – implementation timeline in August of 2023.
Technological advancements: Cloud deployment models, 24/7 accessibility of information, and the need for efficient reporting processes are driving the demand for reporting and disclosure management solutions.
Collaborative reporting: As integrated reporting is increasingly becoming the way forward there is a greater need to explore collaborative reporting. Collaborative reporting allows professionals to work together on draft reports and improve the overall quality of disclosures and makes report assembly and review processes streamlined and efficient.
Best Practices in Disclosure Management for 2024
In the dynamic and complex business environment and ever-fluctuating capital market along with the regulations governing them, the new age disclosure management process needs to scale up and meet those rapidly multiplying requirements.
A few best practices that finance professionals and the CFO office may consider for the upcoming financial year are:
Strategic approach: As the role of CFOs is evolving as key stakeholders and collaborators in the C-suite, finance as a function is also on the path of evolution. It can no longer work in isolation and disclosures need to become an integral part of an organization’s overall communication strategy. Aligning disclosure practices with overall business strategy and corporate values helps create a cohesive, transparent narrative that resonates with stakeholders.
Materiality Assessment: Materiality assessment should be guided by data and information that are most relevant and impactful to stakeholders and the corporate reports and financial disclosure management should follow suit. This ensures that the information that matters the most reaches the intended audience and avoids overwhelming them with unnecessary details. The introduction of the CSRD mandate of double materiality in sustainability reporting and disclosures adds another layer and offers more granular information for stakeholders to make strategic business decisions.
Enhanced data collection and management: With increased emphasis on data protection and stronger regulations mandating it, businesses must implement robust data governance policies and procedures to ensure data accuracy, completeness, and accessibility by establishing clear data ownership, access controls, and data quality standards.
It is important to note that as a step in that direction, regulatory bodies across the world are increasingly mandating XBRL and iXBRL for financial and non-financial reporting and disclosures. The data tagging feature that XBRL and iXBRL offer accuracy and consistency, alleviated levels of errors, and simplified data analytics. The human-readable data adds context and clarity to reports making them more relevant for diverse groups of stakeholders.
To add to the above point, along with XBRL and iXBRL, data analytics tools can extract valuable information from massive data pools and enhance the quality of disclosures, identify trends and patterns, and inform strategic decision-making.
Standardization and automation: To ensure consistency and accuracy in disclosures, using standardized templates across several platforms and formats helps establish consistency and uniformity. Standardization also ensures repetitive tasks are automated and resources are optimized. More and more organizations are discovering the benefits of adopting platforms to streamline, automate, and standardize their disclosure processes, a practice that will continue well into 2024.
Integrated reporting: Standard financial reporting has made way for more integrated reporting that combines financial and non-financial information into a single comprehensive report. This, offers stakeholders a comprehensive view of the organization’s performance and sustainability, facilitating improved understanding and decision-making.
This best practice will travel well into the coming years as we look at further expansion of the scope of reporting and disclosures.
Integrated reporting also helps shift the focus from short-term financial performance toward long-term value generation by adding a layer to the financial narrative by exploring sustainable business practices to contribute to the organization’s long-term success.
Interactive and Engaging Communication- Corporate reports and financial disclosures are changing their form from sad-looking white and black reports to engaging and interactive ways of communicating with stakeholders. The prestigious financial publication IR Magazine recognized Santander with the award for Best Annual Report for the year 2023. The Best Use of Multimedia for IR is to use different multimedia tools empowering users to find the information that they need easily and quickly in a digital environment that is increasingly intuitive and focused on their needs.
It also helps establish consistent and frequent channels of communication with stakeholders. Multiple communication channels ensure engagement and an immersive experience, empowering stakeholders with diverse information and an opportunity to provide feedback that can be incorporated into the reporting processes.
Adopting these best practices improves transparency and trust, reduces risks, and enhances compliance with improved decision-making. It also ensures businesses achieve increased efficiency and cost savings while working toward long-term value creation.
Key Challenges for the year 2024
While the changing landscape of financial disclosure management presents newer opportunities and improvements, it comes with its own set of challenges.
Regulatory landscape- As we have alluded to and discussed in the sections above, it is safe to assume that the regulatory landscape will continue to evolve and expand, thus making reporting and disclosure management more complex and layered. Keeping up will keep the businesses on their toes at all times.
Data, data, and some more- As the digitization of businesses continues, the sheer volume of data generated is overwhelming. A further challenge emerges in ensuring its accuracy, relevance, and analysis so that it can anchor better business decisions. And that brings us to the next challenge.
Integration of technology- To automate operations, improve data analysis, and increase transparency, organizations must efficiently integrate emerging technologies such as artificial intelligence (AI), blockchain, and cloud computing into their reporting processes.
Managing Stakeholder Expectation – Beyond financial performance metrics, risk assessment parameters, and annual reports, stakeholders seek a more integrated and comprehensive understanding of the business and its operations transparently. To meet stakeholder expectations and requirements, organizations must consider environmental, social, and governance (ESG) factors and other non-financial measures in their reporting.
Skill Gap- The rapidly evolving business environment dictates that financial professionals must be skilled in data analysis, technology, and sustainability reporting. Finding and maintaining individuals with these talents is difficult for businesses, especially in the areas of ESG and impact measurement and management as they are still evolving.
Overcoming Resistance to Change– The often overlooked and less talked about challenge organizations encounter, is overcoming resistance to changes like implementing new technologies, adopting new reporting standards, or integrating ESG factors into reporting processes.
Efficient and sufficient corporate reporting and disclosure management can become the cornerstone of compliance for businesses. Organizations can handle regulatory obligations more efficiently, mitigate compliance risks, and create confidence with stakeholders by proactively managing disclosures.
A strategic approach can transform compliance from a reactive burden to a proactive driver of trust, transparency, and sustainable success.