Corporate reporting systems are in a critical state and in need of an overhaul, a report has claimed.
The report, published jointly by PwC, the Chartered Institute of Management Accountants (CIMA) and think tank Tomorrow’s Company, warns that the world’s corporate reporting structures are impairing the ability to spot the warning signs of another financial crisis.
The report warns that the risk of leaving a reporting framework – founded during the Industrial Revolution – largely unchanged means financial accounting may survive, but the overarching system may crumble around it.
“We need to create a reporting framework that is responsive to the changing business environment and which adequately accounts for long-term value creation. It is critical that we have a system that is better positioned to spot the warning signs of another financial crisis,” said Charles Tilley, chief executive of CIMA.
The study, which has looked at the whole reporting system – people, organisations, rules and processes – rather than just the reporting model or the design and content of the report, says the main faults in the system include focusing on data rather than people, culture and behaviours, and reporting being seen in a jigsaw fashion.
“The system is itself a barrier to change,” said David Phillips, senior corporate reporting partner at PwC. “Because of the way in which reporting has evolved, it is rare for any one regulator to have oversight of the whole reporting system in a particular territory. People tend to see particular pieces of the reporting jigsaw, but rarely see it as a system at all.”
The research sets out a roadmap for consensus-building and change, and raises the question as to whether one body should have global oversight of the whole corporate reporting system, or whether global governance is even desirable.
“To be effective, reporting must not only provide an integrated account of what is material, drawing on financial and non-financial data, it must fully reflect the needs of the whole system, and all the key players and institutions that bring the system to life,” said Tony Manwaring, CEO of Tomorrow’s Company.