PwC IFRS blog

The performance statement Do investors and companies see eye to eye?

Reporting performance and the importance of earnings measures are subjects close to the heart of many in the corporate reporting world. Debate on these issues is heating up with the format of the performance statement under review by the IASB and the FASB. I have mentioned in previous postings that PricewaterhouseCoopers has been conducting a survey on performance reporting and the results of that work –  entitled Performance statement: Coming together to shape the future –  have now hit the virtual news stands.

We asked both investment professionals and preparers of financial statements from the corporate community about the key elements of information that need to be visible in the income statement. One of our most striking findings is the degree of congruence between the views of both types of respondents.

• Both investment professionals and preparers stress the need to be able to distinguish “underlying” earnings from both one-off events (such as a gain from the sale of a business) and the impact of the re-measurement of assets or liabilities.
• Respondents believe that the earnings number is useful and largely agree upon how that number should be defined. 
• Non-GAAP information is held to be valuable by the vast majority of respondents, though it was widely held that some ground rules should govern their use.
• The only key areas of divergence between investment professional and corporate lie in the granularity of tax reporting and how segments should be determined.

The IASB and FASB are working together towards a discussion paper on the subject of financial statement presentation. With such a high level of agreement between the preparers and users of corporate information, a practical solution to the performance reporting conundrum must be within reach.

I would be interested to hear any comments that you may have on our findings either by email or by commenting here.

Investors have an important perspective on reporting

Consider the following: Quality corporate reporting, accurate assessments of investment risk and low cost of capital.

If you agree that they are inextricably linked, then you might like to know how important investment professionals believe corporate information is and what they think about the quality of the information they actually receive (see particularly page 8 of the report linked to below).

Certainly, at PwC, we are very interested in understanding the investment community’s perspective and trying to connect this community more thoroughly with the standard-setting process. That’s why we interviewed over 250 analysts and investors worldwide and have recently published the findings – ‘Corporate reporting: is it what investment professionals expect?'

The report provides some noteworthy insight about what this community wants and how corporate reporting could do more to meet their expectations.

Investors still see information that is reported according to financial reporting standards (GAAP) as the bedrock for their financial analysis. They are also in agreement about the improvements they would like to see in corporate reports. They want, for example:

• More analysis of the income statement, which they use to assess operating performance
• Revaluations of assets and liabilities that do not obscure underlying operating performance
• Continued use of subtotals, such as a net income or earnings numbers
• No prohibition of non-GAAP information, but consistent ground rules governing their use

These improvement would increase their confidence in reported data, investors say. The themes are also consistent with the debate around the importance of earnings, to which I referred in my previous posting.

We have expanded on this in another survey, ‘Performance statement: coming together to shape the future’. For this latest survey we have canvassed the views of both preparers and users of financial statements and the degree of congruence in those views is striking. In particular, there is a clear message from both sets of stakeholders that the income statement offers the best insight into the performance of a company and that they care deeply about what it might look like in the future.

I will share the results of this survey in more detail in my next posting.