Inspiring trust: Is there a better way?Follow @PwC_LLP
Across the world, the concept of business value is changing – and the focus of reporting is changing with it. As an array of accelerating megatrends put companies’ resilience, sustainability and business models to the test, preparers and users of corporate reporting are recognising the need for a broader view of value creation that goes beyond increased output and short-term financial returns.
Instead, sound business decisions – and the disclosures companies make around them – increasingly need to reflect accountability to a wider set of stakeholders and require a more holistic and integrated view of the outcomes and impacts of everything an organisation does.
Corporate reporting – both internal and external – is evolving to reflect these shifts as I've shown in the diagram. Many leading organisations worldwide are already pushing back the boundaries by innovating and experimenting with more progressive reporting. Building stakeholder trust in their reporting during the transition is important, but also challenging.
Why? Because the existing assurance model – and the concepts underlying it – have their roots in the audit of financial statements, which is a mature, historical and financially-based reporting framework. And that model doesn’t always sit easily with reporting that’s broader, more forward-looking, more integrated, and – crucially – still evolving.
So, what to do? I believe it’s time to think boldly about a new and different way to build trust in corporate reporting.
Information doesn’t have to be ‘hard’ to be trustworthy – but you do need to know how ‘soft’ it is, and where it’s come from.
So, what if, rather than providing a conclusion on how an organisation’s reporting measures against criteria, we turn the equation round – and instead provide insight that lets people look behind the numbers, so they can decide for themselves the degree of trust they’ll put in the information?
What might be the characteristics of such a model? Based on the application of informed professional judgment, we can envisage a model that's:
• Multi-dimensional – telling a story about the maturity of the organisation’s reporting across several dimensions;
• Information-rich yet simple – and made more accessible through a visual representation with clear commentary;
• Able to provide insight into what lies behind the numbers – not just whether the numbers are ‘right’ or ‘wrong’ – together with links, when available, to areas where traditional assurance has been obtained; and
• Capable of being applied consistently across different organisations.
All these characteristics point towards a model that’s accessible and understandable ‘at a glance’ – allowing it to remain simple and user-friendly, while being able to handle a vast array of different types of information. Essentially, this would support an organisation in being transparent about where it is on its reporting journey.
In our new thought piece, Inspiring trust through insight, we show how this model might work using the Integrated Reporting (IR) Framework. We believe this thinking is equally applicable to internal reporting: for example, it could be applied to management reporting on the Total Impact Measurement and Management (TIMM) dimensions, measuring an organisation’s social, environmental, tax and economic impacts.
One thing’s clear: corporate reporting is evolving to be broader, more forward-looking and more integrated. The assurance profession should support and accelerate this journey and I think the model we’ve developed shows a possible way forward.
Richard Sexton is Vice Chairman; Global Assurance, an appointment he took up on 1 July 2013. In this role, he focuses on further building the PwC network’s global assurance practice with particular emphasis of quality and regulatory matters, trust in the profession, and broader financial markets. Read Richard's full biography.