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By Akinyemi Awodumila
Presently, effective corporate reporting has become challenging in an environment with declining trust in institutions.
While the range of reporting frameworks that organisations have to comply with has grown significantly, there is the risk that organisations get bogged down with these regulatory requirements and focus less on the ultimate goal of corporate reporting itself.
We have witnessed how a compliance-only mindset towards reporting has led to a culture of short-termism among organisations that have failed to take a big picture approach towards reporting that communicates the role of organisations in society and the drivers of long-term success.
Organisations have become overly focused on the short-term pecuniary benefits attached to delivering quarterly results, boosting share price and attracting financial capital in a highly competitive and globalised market.
Business leaders have begun to recognise that, while delivering good financial results in the short term is valuable, it is more important to focus on the organisation’s ability to create long term value sustainably for all stakeholders.
As a result, organisations are redefining their role in society by formulating comprehensive strategies that address the needs of a host of stakeholders. When properly implemented, these strategies change the entire mindset of how organisations are led at every level.
Therefore, a reporting mindset that looks beyond compliance and on building long-term trust with stakeholders in society is not simply didactic but an outcome of a changed mindset occurring internally in the organisation.
This paradigm shift to reporting is required for organisations to succeed and stand out in the marketplace today.
In an age where rebuilding trust in society is critical, it becomes imperative for organisations to see reporting as a means to achieve this goal and position themselves for a more sustainable future.
A critical step towards implementing beyond compliance mindset is to consistently apply regulatory reporting requirements in a tailored and bespoke manner to organisations. It shifts the focus from the letter to the spirit of regulation.
For example, many organisations do not provide tailored accounting policies on their specific transaction to enable users of their financial statements to understand the nature of their business.
Rather than merely regurgitating boilerplate accounting standards, organisations can customise their reporting to reflect their circumstances and context. Another step towards beyond compliance is providing linkages on the financial impact of non-financial matters on an organisation.
Organisations are also required to exercise judgement when defining their boundary of responsibility. This exercise articulates and brings into scope the non-financial issues (NFIs) impacting the organisation such as ESG.
In addition, these NFIs should be reported on even when there are no regulatory mandates. There is no fine line for determining this boundary, and each organisation must begin to operate from this perspective to imbibe a culture beyond compliance.
Finally, organisations should embrace best practice reporting principles and frameworks even in circumstances where they are not mandatory. This is one key attribute of organisations that approach reporting beyond compliance.
It enables organisations to benchmark themselves with the best-in-class reporting, keeping them agile. An important trait required to succeed in the highly competitive and disruptive environment in which organisations operate today.
Organisations that embrace the beyond compliance mindset will better navigate disruptions and challenges due to changes in the regulatory environment. Also, such organisations can lead even in an environment where regulations are absent.
After all, they embrace best practices irrespective of the local requirements. One example has been the adoption of the corporate governance reporting principles of King IV, which many organisations have started to embrace even when they are not mandated locally.
Therefore, organisations should approach corporate reporting beyond compliance to achieve sustainable growth in the long term.
This article was first published by BUSINESS DAILY on 21/02/2022.
