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Developing a 21st Century Business Reporting Model for Improved Transparency and Trust

The current financial reporting model is increasingly viewed as inadequate, failing to address the diverse information needs of investors, analysts, and stakeholders. Key issues include relevance, accessibility, and clarity of reported data, leading to a trust deficit in the capital markets. The convergence of accounting standards and the rising expectations for Environmental, Social, and Governance (ESG) disclosures necessitate a modernized reporting framework. As financial crises heighten scrutiny, adopting a transparent business reporting model can help restore confidence and accountability in global financial systems.

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Developing a 21st Century Business Reporting Model for Improved Transparency and Trust

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  1. Why we must develop a 21st century business reporting modelWICI-JapanOpen meeting at KPMG AZSAFebruary 27, 2009Mike Krzusmike.krzus@gt.com

  2. What’s wrong with today’s financial reporting model? • Not enough focus on investor, analyst, stakeholder information needs • Financial reporting not relevant (linked) to internal management reporting and decision-making • Information difficult to prepare (disparate internal systems), understand (opaque, complex) and access (dense, paper-based) • Boilerplate discussion of strategy, plans, opportunities, risks • Limited disclosure of KPIs • Little or no focus on ES&G

  3. The capital markets need more relevant information Book-to-Market Value S&P 500 Value ($ millions) Year Book Value Market Value Earnings $14,000,000 $12,000,000 $10,000,000 $8,000,000 Accounting Profession Relevance & Sustainability Gap $6,000,000 $4,000,000 $2,000,000 $0 '78 '80 '85 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06

  4. The forces of change • Convergence in accounting standards • Convergence of U.S. GAAP and IFRS the first step in convergence of corporate reporting more broadly under a principles rather than rules-based approach • Demands for information on ES&G issues • NGOs and others are increasingly effective in making clear what type of information they want from companies which broadens their external reporting requirements • Rising expectations of all stakeholders • The size of the world’s largest global companies has turned them into institutions that are important to society in general and their obligations to responsibly fulfill this role are increasing • Growth of the Internet and XBRL • Companies and regulators are increasingly relying on the Internet to report and collection information and adoption of XBRL is growing

  5. The current crisis • The collapse of the financial markets • Lack of underlying information on certain types of transactions (e.g., subprime mortgages and credit default swaps) a major cause of this collapse • Short-term earnings are an especially unreliable guide in the current economic environment and so investors are looking for other measures of performance • The critical question • Given the cumulative societal cost of the credit crisis; can we afford to ignore the possibility that a new, more transparent business reporting model might contribute to restoring trust and confidence?

  6. Restoring trust in the global financial system

  7. WICI Framework V1.0 0 Corporate profile and business attributes 0-1 Industry overview 0-2 Duration and results per business unit 0-3 Business cycle per business unit 0-4 Competitive analysis A Business landscape A-1 Business landscape d Performance d-1 Performance summary d-2 GAAP-based d-3 GAAP-derived d-4 Industry-based d-5 Company-specific d-6 Capital market-based A Business landscape A-1 Business landscape summary A-2 Economic A-3 Industry analysis A-4 Technological trends A-5 Political A-6 Legal A-7 Environmental A-8 Social B Strategy B-1 Corporate strategy summary B-2 Vision and mission B-5 Opportunities B-6 Threats B-7 Goals and objectives B-8 Corporate strategy B-9 Business unit strategies B-10 Business portfolio b Strategy b-1 Corporate strategy summary b-2 Vision and mission b-3 Strengths b-4 Weaknesses b-7 Goals and objectives b-8 Corporate strategy b-9 Business unit strategies b-10 Business portfolio c Resources and processes c-1 Resources and processes summary c-2 Resource forms c-3 Key processes c-4 Value drivers C Resources and processes C-1 Resources and processes summary D Performance D-1 Financial prospects summary

  8. Change is never easy, but it does happen • The Americas • Nike, Sun Microsystems, Timberland • Asia-Pacific • BHP Billiton, Infosys, Ricoh • Europe • Allianz, BMW, Novo Nordisk

  9. Why we must develop a 21st century business reporting modelWICI-JapanOpen meeting at KPMG AZSAFebruary 27, 2009Mike Krzusmike.krzus@gt.com

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