Do you ever dream about the future of financial reporting? No—me neither! I have experienced a few nightmares related to this topic, but I can honestly state that I never dream about what the future holds. To be honest, I am typically so swamped trying to keep up with the constant change in standards and best practices that I do not spend a lot time thinking about a new reporting paradigm.
However, I think it is time that we all begin to think seriously about a new reporting model for the future. As recently as 1975, a public company’s stock price had an 83% correlation to its physical and financial assets. By 2009, this correlation had dropped to only 19%.
Obviously, firms like Apple are not worth nearly $600 a share based on their physical and financial assets. Apple is worth around $600 a share because of future cash flow expectations of investors. However, typical financial reporting does very little to identify future cash flow events. In fact, as a profession we are focused on historical information (with some interest in determining whether the firm is a going concern).
A new reporting model—integrated financial reporting—attempts to address a company’s overall value creation process. This new model brings together information about a firm’s strategy, governance, performance and future prospects all in one report to stakeholders. Significant portions of this type of information are currently found in separate financial, management, governance, remuneration and sustainability reports.
While many challenges are evident in moving to a new reporting model, new opportunities for CPAs in both industry and public practice are almost unlimited. Currently, over 70 firms are engaged in a pilot project along with over 20 investor groups. I encourage you to visit www.theiirc.org to learn more about this exciting concept.
I hope each of you spend some time dreaming (planning) about the future of financial reporting. Change is coming—let’s be proactive rather than reactive.