TechTalk Blog - UK Moves Forward with Non-Financial Reporting for Public Companies Required by Yearend

By David Colgren posted 05-10-2016 09:09 AM

  

Interesting article in the UK’s Financial Director about yearend non-financial reporting required by UK companies as part of the EU mandate for 6,000 + public company requirement to report non-financial information to the capital markets and important stakeholders such as investors.

The UK most now adopt the European Union’s own rules around the reporting on long-term risks and strategies as part of the new EU Non-Financial Reporting Directive. The directive’s provisions, which aim to harmonize and improve non-financial reporting across the EU, must be transposes into law by 6 December 2016.

Will pressure in the United States for the US Securities & Exchange Commission and/or the US Congress to adopt a similar rule as EU public companies move forward with this EU Directive for public company non-financial reporting to be included into financial reporting (integrated reporting)? Will this EU Directive put EU public companies at an economic advantage in raising capital markets funds by better explaining HOW companies are long-term whether the customer base is getting stronger and better managing risks/material issues?

Financial Director provides the following information about EU public company disclosure of non-financial information reporting to the capital markets:

“Historically, the nature of corporate reporting has been backwards in nature; dialogue between management and investor was based on previous earnings performance. But increasingly company reports are taking on the narrative, business driver-related nature of wider company/investor discussions.

The move towards the reporting of non-financial value drivers is on the one hand a response to the limitations of historical financial statements.

“The historical financial statements will tell you whether revenues are growing but they won’t necessarily tell you whether the customer base is getting stronger,” writes Larry Bradley, global head of audit at KPMG International, in the professional service firm’s ‘better business reporting’ study.

“Said another way, the financials may tell you how much money the company made, but not necessarily how it makes money. And more importantly, whether the current year earnings provide a long term sustainable proposition for value creation,” he adds.

As part of the non-financial report, companies must provide the principal risks to the business, any relevant non-financial key performance indicators, as well as information relating to its policies (and their impact and effectiveness) on environmental, social and employee matters (such as diversity policies), respect for human rights, and anti-corruption and bribery.

Currently the US SEC is seeking public comment on whether non-financial reporting should be included in the formal financial reporting process. In addition, the Financial Stability Board (FSB) which reports to the G-20 nations is also seeking comment on this same topic.

The Sustainability Accounting Standards Board (SASB) based in San Francisco, CA has released a framework for 79 industry sectors in the United States that public companies can use to voluntarily report KPIs that related to several if not all of the indices required for non-financial reporting.

Stay tuned.



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