Increasing transparency through enhanced business reporting: in today's economy, investors need contextual information on important areas impacting performance, such as the competitive environment, strategy and risks as well as important intangible assets.

• Author: Laux, Bob
• Position: BUSINESS PERFORMANCE

As the worldwide financial crisis continues, calls for greater transparency in financial reporting are increasing. Part of providing greater transparency in financial reporting will entail improvements to the U.S. generally accepted accounting principles reporting model.

Today's company reports and financial statements provide an incomplete story for evaluating past performance and assessing likely future results.

Investors need contextual information on important areas impacting performance, such as the competitive environment, strategy and risks, as well as important intangible assets. They are also interested in information on nonfinancial key performance indicators (KPIs).

Enhanced business reporting is about developing these areas and enabling their sustainable relevance through market collaboration.

Enhanced Business Reporting Consortium

As a follow on to the American Institute of Certified Public Accountants' Special Committee on Enhanced Business Reporting, the Enhanced Business Reporting Consortium (EBRC) launched with the following four founding members: Pricewater-houseCoopers, Microsoft Corp., Grant Thornton and the AICPA.

EBRC's mission is to establish a group of investors, creditors, regulators, management and other stake-holders to improve the quality, integrity and transparency of information used for decision making.

In particular, EBRC is working on enhancing the reporting model to focus not only on financial information, but also on a range of contextual and nonfinancial information that provides an enriched understanding of company performance, value drivers, strategies and potential.

While the current GAAP-reporting model serves as an effective foundation from which business reporting should start, timely decisions can be made only by looking at both lagging indicators (such as those found in historical financial statements) and leading indicators (such as value drivers and KPIs), which provide more predictive information about future cash flows and the viability of a business.

This is the kind of information that management currently uses to make key decisions, and yet there is a disconnect in the corporate reporting process between the information management uses internally for decision-making purposes and what is provided externally to the marketplace for its decision making.

Reporting Framework

EBRC is currently in the process of developing a high-level framework for the disclosure of key business information in...