LOGIN MAIL

• PRESS ROOMPUBLIC AREA
• STUDENTSCANDIDATES
• CONTACT USFIND A CPA
• HELPADVERTISE
• SEARCH SITE
  
• 901 Dulaney Valley Road | Suite 710 | Towson MD 21204 | 800.782.2036

• January / February
• March / April
• May / June
• July / August
• September / October
• November / December
  • Private companies hop aboard the EBR train
  • Another step toward transparency
  • Sarbanes-Oxley: A foreign perspective
  • Learning to learn
  • Retirement plans are for small businesses, too
  • Managing technology so that it can work for you (Part 1)
  • Avoid these common ERISA audit deficiencies
  • Goal-based budgeting deepens CPA-client relationship

Another step toward transparency

By Bill Sheridan
Statement Editor

A new framework is building momentum in the investment community for enhanced business reporting.

The move to provide investors with more transparent financial reports has taken a significant step forward.

A consortium promoting the creation of enhanced business reporting, or EBR, last month released a framework that details what an enhanced financial report might look like. Such a report, supporters say, should include not just mere financial information but also details about key performance indicators and qualitative factors such as business opportunities, risks, strategies and plans.

The framework released last month includes four categories of information:

• Business landscape
• Strategy
• Performance
• Competencies and resources

"During the last 10 years, many organizations have proposed new or improved reporting models, but none so far has succeeded in gaining recognition as a common, complete framework that would allow for consistent and relevant external reporting of key performance information," said Mike Krzus, interim director of the Enhanced Business Reporting Consortium (EBRC). "The EBRC framework provides that model."

The consortium now is seeking feedback about the framework from the business community, in the hope of building the best possible approach for providing investors with the information they need to make informed decisions about a company.

"We want visibility, criticism, and hopefully some questioning from business executives so they can begin to understand this particular solution," said Robert Mednick, a former AICPA chair and member of the AICPA's Special Committee on Enhanced Business Reporting.

'A more robust discussion'

The need is certainly there. According to a recent PricewaterhouseCoopers study, only about one-third of the information CEOs consider critical about their companies is being reported externally. Such information could include things like employee turnover, patent portfolios, or research and development.

The information presented in an enhanced business report might change from company to company, but the idea is the same: Report the information that will help investors see the company through management's eyes.

"We are looking for a more robust discussion about the company," said Bob Laux, Microsoft's director of technical accounting and reporting and a member of the AICPA's Special Committee on Enhanced Business Reporting. "We're talking about reporting based on the way you run your company."

Convincing companies to embrace EBR hasn't been easy so far, especially considering the hardships many public entities have faced in complying with provisions of the Sarbanes-Oxley Act.

"It's hard to introduce any type of voluntary initiative when corporate America is flooded with all of these regulatory requirements that prevent them from focusing on anything else," Mednick said.

There is also a perception among some executives that EBR will increase their already burdensome workloads and compliance costs.

In the long run, though, Laux believes the opposite will be true: If companies are providing detailed information that investors need to make informed decisions, lawmakers will be less likely to enact costly, time-consuming regulation.

Mednick agrees.

"The mindset of the regulatory community today is that the answer to all problems is more regulation," he said. "Unless the business community begins to develop, on a voluntary basis, the things that can really help financial reporting, we are going to have to deal with more and more regulation."

Getting buy-in from investors is proving a far easier task. In the short term, said Mednick, investors may begin demanding the richer information in an enhanced report and put pressure on companies to provide it.

The good news about EBR, though, is that most decision-makers seem to get it.

"When we take this to CEOs, their eyes light up. They tell us, 'We need to make this change,'" Laux said.