21 Mar 2014
Corporate reporting is evolving, fast. And in some ways today’s assurance model is struggling to keep up. Diana Hillier, Global Assurance Standards and Ian Hitchen, Global Strategy ask if there’s a better way.
Across the world, companies are being challenged. Stakeholders are asking if the business is resilient, if it’s sustainable and whether it can ensure future value creation. There is a constant pressure to provide more information on a broader range of areas, and for that information to say more than what the short-term financial returns might be.
Corporate reporting – both internal and external – is evolving to reflect these shifts, becoming more holistic and integrated. But companies are telling us that doing this isn’t easy – they are having to press on through uncharted territory, using frameworks and standards that aren’t fully developed.
And this is where it gets difficult. Organisations know that in providing greater insight on how they are managing different aspects of their value creation is now essential for building trust with stakeholders, but they’re naturally reluctant to report using developing methods. Not only are companies reluctant, but stakeholders too are sceptical of new information – how robust is it? How complete? Is it fact or spin?
But we can’t let uncertainty or scepticism get in the way of progress; we have to encourage experimentation – and for that, we have to retain and build trust in disclosures during the transition to the new form of broader reporting.
The question is ‘how?’. The traditional way to build trust, certainly in financial reporting, is through the audit. But against the new breadth of information that companies report on, applying the current assurance model raises a number of challenges.
Crucially, the current assurance model presumes that there are robust, constant and ‘suitable’ criteria that can be applied when measuring or evaluating a subject matter – and that using these criteria will produce substantively comparable results. That isn’t necessarily the case with reporting that is still evolving.
So, what to do? It’s time to be innovative and be prepared to think about a new and different way that we can build trust in corporate reporting as it is evolving – to be more supportive during the development of this broader, more integrated reporting.
Information doesn’t need to be “hard” to be trustworthy – but you do need to know how “soft” it is.
So, we thought we’d turn the equation around. What if, rather than providing a conclusion on how an organisation’s reporting measures against criteria, we were able to provide insight that lets people look behind the numbers to enable them to decide for themselves the degree of trust they put in the information?
How would that work in practice? Well, first, the model would have to be multi-dimensional, telling a story about the maturity of the organisation’s reporting over the full range of measures that matter. It would also have to be information-rich but simple too – and made accessible with visual representations supported by a narrative. It should be able to provide insight into the numbers – not just whether they’re ‘right’ or ‘wrong’ but how mature the company’s reporting is across a series of dimensions.
For each different set of information – say, financial, environmental, social – the model could show the relative level of maturity based on, for example, the integrity of the source data, the degree of measurement uncertainty and whether it’s being used internally as well as externally – how transparent it is.
The overall aim would be to enable organisations to be transparent about where they are on the reporting journey and equip readers to make informed decisions on how much they trust, and how they use the information they receive, hard or soft.
The new model won’t replace the old – far from it. We have little doubt that at the right stage in the development of an organisation’s reporting, there will be a role for assurance as we know it today. But for now, this new model could complement the old, by applying auditors’ expertise and professional judgment in the emerging areas where it’s not yet possible to provide comprehensive ‘traditional’ assurance.