In this series of articles, we will explore the evolution of corporate reporting. The best place to start is understanding the basics of reporting. Reporting primarily has to do with communicating your message effectively to the intended audience. There are 2 key components that you need to understand to prepare a good report and we will explore them below:
- Audience – to draft a good report you have to first understand the key information/data needs of your audience (In corporate reporting this becomes a bit complex when you have multiple audiences that have different needs). The most important question that you are answering is – what key (material) information will satisfy your audience’s needs?
- Effective communication – the communication of your message should be in a clear and concise manner. Key information/data is prioritised in the communication. Only information/data that is sufficient to satisfy the information needs of the audience should be communicated. The other aspect of communication is choosing the right way to deliver/present that message. The communication should be delivered using the best medium that will improve clarity and effectiveness of your message (charts, graphs etc.)
Once you understand the basics of reporting you can easily see why corporate reporting has evolved over the years. Corporate reporting was born from the information needs by resource providers (finance providers & suppliers) to assist them in making informed decisions about providing resources to companies. Corporate reporting in its most basic form involves the disclosure of material (key) information by business entities based on the operations and transactions they undertake. Some of the drivers of the corporate reporting evolution have been:
- Corporate reporting audience –there has been a major transformation of the audience due to the size of the audience and their information needs. We have seen the addition of audiences (society, impact investors, green investors) to the corporate reporting landscape, and we have also seen change in the needs of the audiences. One of the most important audiences in corporate reporting is the evolving Investor group. Investor group includes high frequency traders, hedge funds, impact investors, green investors, retail investors etc.) who all have different information needs. As the investor group diversifies the information needs have also evolved. This change has been necessitated by changes in attitudes towards investing (impact investing, social investing, green investing etc.)
- Technology changes – technology is playing a huge role in how reports are presented and accessed today. 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 allows companies to prepare corporate reports that can be pulled onto spreadsheets for easier analysis.
- Corporate governance codes – codes have been developed that deal with corporate governance issues. These codes have necessitated certain information to be provided as part of corporate reporting (King Code for example).
- 21st century challenges of globalization, pollution, resource scarcity, and other negative effects that affect current and future generations prompted some organisations to act and advocate for non-financial reporting. Governments around the globe are now playing a key role in corporate reporting with some government mandating certain information needs from the companies (mandatory ESG disclosures).
In our next article we will explore in more detail how corporate reporting has evolved by looking at different eras of corporate reporting.
