April 2008 Global Developments in Corporate Reporting Charles Tilley Chartered Institute of Management Accountants Chief Executive Global Developments in Corporate Reporting

CIMA Innovation and Development Global Developments in Corporate Reporting April 2008

Financial Reporting Supply Chain Narrative Reporting Report Leadership Public Sector The Agenda today Global Developments in Corporate Reporting April 2008

CORPORATE GOVERNANCE FINANCIAL REPORTING PROCESS FINANCIAL AUDITING PROCESS USEFULNESS OF FINANCIAL REPORTS FINANCIAL REPORTING SUPPLY CHAIN Current Perspectives and Directions Global Developments in Corporate Reporting April 2008

In recent years, there have been significant efforts to change and improve financial reporting. What is the result of these changes? Has the financial reporting process become better or worse? Have the financial reports become more or less relevant, reliable and understandable? What should be done next? Global Survey June/July responses from around the world and from all parts of the FRSC Introduction Global Developments in Corporate Reporting April 2008

Positives: Increased awareness that good governance counts New codes and standards Improved Board structure Improved risk management and internal control Increased disclosure and transparency Areas of Concern: Governance in name but not in spirit Overregulation Development of a checklist mentality Personal risk and liability for directors and management Cost benefit concerns Corporate Governance Global Developments in Corporate Reporting April 2008

Further Improvements : Continued focus on behavioral and cultural aspects of governance Review existing rules Further improve quality of directors Better relate remuneration to performance Expand view from compliance to business governance Corporate Governance Global Developments in Corporate Reporting April 2008 Survey Results : Corporate governance has improved Balance between costs and benefits has become better

Positives: Convergence to a single set of global financial reporting standards Improvements to regulations Board of Directors / Management taking ownership of financial reporting Improved internal control over financial reporting systems Improved technology for preparing financial reports Areas of Concern: Transition to IFRS Complying/reconciling accounts to different financial reporting standards Complexity of financial reporting standards Focus by companies on compliance instead of essence of the business Financial Reporting Process Global Developments in Corporate Reporting April 2008

Financial Reporting Process Survey Results: The financial reporting process has improved Balance between costs and benefits is about the same Further Improvements: Continue convergence to one set of financial reporting standards Simplify and clarify financial reporting standards - more principles and less rules Ensure Boards of Directors pay attention to the quality of financial reports Additional education and training for preparers Global Developments in Corporate Reporting April 2008

Financial Auditing Process Positives: Improved auditing standards and processes Increased awareness, commitment and competence of auditors and audit committees More risk focused audits Greater auditor independence Improved quality review and auditor oversight Areas of Concern: Reduced scope for professional judgment Overregulation Liability fear leading to boilerplate audits and lack of innovation Limited auditor’s communication with external stakeholders Limited choice of audit firms Increased audit cost relative to perceived benefits Global Developments in Corporate Reporting April 2008

Financial Auditing Process Survey Results: The financial auditing process has improved Balance between costs and benefits is about the same Further Improvements: Continuous focus on independence and integrity Convergence to one set of global, principles-based auditing standards over time Consistent use of audit standards and safeguarding of quality within audit firms Improve auditor’s communication, Limited/proportionate liability for auditors Greater choice of auditor desirable Global Developments in Corporate Reporting April 2008

Usefulness of Financial Reports Positives: Better financial information More disclosure and comparability in financial reports Improved reliability Increased emphasis on narrative reporting Easier access to financial information Areas of Concern: Reduced usefulness due to complexity Regulatory disclosure overload Liability Difficult and often changing financial reporting standards Global Developments in Corporate Reporting April 2008

Usefulness of Financial Reports Survey Results: All sources of information about a company are useful Annual reports preferred to real time or monthly information Mixed results about XBRL Paper financial reports remain useful Relevance of financial reports has improved Understandability of financial reports is about the same Reliability of financial reports has improved Global Developments in Corporate Reporting April 2008

Usefulness of Financial Reports Further Improvements: Improve communication within the financial reporting supply chain More “business driven” information in financial reports Better alignment of internal and external reporting Improve users’ access to electronic data Short form reporting focusing on the material issues Global Developments in Corporate Reporting April 2008

FINANCIAL REPORTING SUPPLY CHAIN Current Perspectives and Directions Global Developments in Corporate Reporting April 2008

Narrative Reporting Global Developments in Corporate Reporting April financial reports greatly enhanced when the bare figures are supplemented with insightful narrative, -use of non-GAAP key performance indicators -reconciled to, the IFRS/GAAP figures -allow the company’s financial story to be told

Global Developments in Corporate Reporting April 2008

Background to the initiative Increasing complexity Effective reporting/communication Need good information Companies adopting certain aspects Challenge – internal information Online Corporate Reporting Executive remuneration Global Developments in Corporate Reporting April 2008

Generico annual report Extracts from a fictitious company’s annual report Illustrates “practical” ideas for effective, accessible reporting Can be implemented today All communication channels Not final answer Global Developments in Corporate Reporting April 2008

First publication – launched November 2006 Key issues investors raise about reporting Focused on three key areas Modelling the future Rethinking the financials Effective communication Three-tier approach What is the problem? What do investors want? How have we addressed these needs? Global Developments in Corporate Reporting April 2008

Reporting of Executive Remuneration Generates headlines Sensitive and heavily-scrutinised area of reporting Lack of clarity over who owns this section Global Developments in Corporate Reporting April 2008

Practical ideas, implemented now Global Developments in Corporate Reporting April 2008

“The Public Sector ” Global Developments in Corporate Reporting April 2008 Performance management culture Appropriate structures Expertise and training

Conclusion Progress being made Issues to be addressed -Transparency -Narrative reporting -Quality Public Sector Global Developments in Corporate Reporting April 2008

Global Developments in Corporate Reporting Charles Tilley Chief Executive Global Developments in Corporate Reporting