Assurance on management commentary: Where next?
New research from ICAS recommends steps companies can take to report non-financial KPIs in their financial reports.
The debate on corporate reporting and how companies can better meet the needs of shareholders, investors and other stakeholders continues, despite a number of initiatives in recent years.
On one hand reporting requirements continue to increase, while on the other users demand clearer and more concise information that provides a comprehensive picture of performance.
Against this backdrop, two research projects from ICAS have recommended ways to address these issues.
They consider the usefulness of reported non-financial key performance indicators (NFKPIs) across five countries and sectors between 2013 and 2016, and the ‘quality’ of NFKPIs by reference to the provision of comparatives, the breadth of KPIs reported, as well as stated company business models and value drivers.
While each project comes to a different conclusion with regard to the proportion of companies disclosing NFKPIs, both identify significant shortcomings for those indicators disclosed.
For instance, only half can be described as ‘key’ – or linked to value creation – few are presented together with comparatives such as prior year results or targets, and breadth of reporting is restricted.
How companies can report on non-financial KPIs
At the end of 2018, the Global Investor Organisation Committee urged listed companies and standard setters to agree an approach to the treatment and inclusion of environmental, social and corporate governance (ESG) factors in company disclosure and reporting.
The papers contain various recommendations to help achieve this objective for reporting ESG and other NFKPIs. This includes:
- developing guidelines that stress the importance of linking NFKPIs to a company’s value drivers.
- encouraging companies to lay out their approach to NFKPIs disclosure and providing comparatives.
- explaining the rationale behind the KPIs presented.
These recommendations need to be set in the context of a cohesive principles-based international framework, owing to the specialised and evolving nature of NFKPIs.