ENHANCED BUSINESS REPORTING

(A Technology Driven Solution)

FCM Conference

Alan AndersonSenior Vice President

AICPA

Change in Mind-SetChange in Mind-Set

Historical Financial Statements

Enhanced Business Reporting

Lagging indicators…• Periodic• Historical• Cost-basis• Financial only• Statements• Looking backward

Leading indicators…• On-demand• Real-time/future• Value-basis• Comprehensive• Custom reports• Looking forward

Past FuturePresent

Historical Financial Statements

Enhanced Business Reporting

Lagging indicators…• One size fits all

(GAAP)• Ignores nonfinancial

measures• Reports results of past

decisions

Leading indicators…• Tied to mission,

vision and values• Tied to factors

critical to success• Moves decision

criteria to forefront

Past FuturePresent

Change in Mind-SetChange in Mind-Set

Why?

• The current reporting model is no longer sufficient.– Not timely – its after the fact news.– Not informative enough.– Ignores many factors of performance.

• So far, calls for change and some action.

• Now it’s time for coordinated action.

Recommendations are Good but ACTION is better!

We Must Build Upon the Foundation to Chart the Path for The Future by:

Enhancing Business Reporting

ENHANCED BUSINESS REPORTING ELEMENTS

CONVERGENCE TO “NEAR REAL

TIME”

SCALABLE

ELEMENT MAPActions

Required qualitative characteristics

of financial and business information

Relevance• Timeliness• Predictive value• Validation of expectations

Reliability• Measurability• Completeness

Neutrality• Unbiased

Comparability• Industry peers• Period-to-period

Understandability• Clear• Coherent• Jargon-free

Corporate Accountability

• S-O Act §404 internal control

• Environmental, Health &

Safety (EHS) e.g. Global

Reporting Initiative

• Social responsibility e.g.

AccountAbility 8000

• Risk reporting e.g. COSO

Enterprise risk management

• Corporate governance e.g.

ISS Corporate Governance

Quotient

Financial & Non-Financial Measures

• US GAAP/SEC financial

statements

• Non-financial KPIs– Customer satisfaction– Customer retention– Market share– Product defects– Employee training– Employee satisfaction– Patents held– R&D spending– New product pipeline– Costs per transaction– Industry benchmarking– Revenue per… customer, square foot, ton-mile…

• Forward-looking information,

NOT prospective financial

statements

• Value measurement

reporting

collaborative (VMRC)

Understandable Disclosures

• SEC plain-English

• VMRC

Information Dissemination

• XBRL

• Customizable by users &

flexible reporting by CPA

– Capital markets

– Debt markets

– Board of directors

– Management

– Regulators

– Employees

– Customers

– Suppliers

– NGOs

• Near real-time

System Reliability

Data assurance• Audit of financial statements

– Close expectation gap

• SSAE 10 or ISAE 100– XBRL data tags– Footnote terminology related to XBRL

Systems/process assurance• Examination of S-O Act §404 assertion

• SSAE 10 or ISAE 100– e.g. SysTrust

• Process-based– KPIs– Fwd-looking info

• Hybrid - Data (where suitable criteria exist) or process

– EH&S– Social– Risks/ERM– Corporate governance

Continuous assurance• Continuous audit process using embedded software agents

Element Map:Corporate Accountability

• S-O Act §404 internal control

• Environmental, Health & Safety (EHS) e.g. Global Reporting Initiative

• Social responsibility e.g. Accountability 8000

• Risk reporting e.g. COSO Enterprise risk management

• Corporate governance e.g. ISS Corporate Governance Quotient

Corporate Corporate AccountabilityAccountabilityPublic Trust- 3 ElementsPublic Trust- 3 Elements

PUBLICTRUST

Spirit ofTransparency

People ofIntegrity

Culture ofAccountability

“We need to move towards “Principles Based Thinking”, away from more rules” …David Weinstein, EVP Fidelity Investments

Element Map:Systems Reliability

• Data assurance– Audit of financial statements– Close expectation gap

• SSAE 10 or ISAE 100– XBRL data tags– Footnote terminology related to

XBRL

• Systems/process assurance• Examination of S-O Act

§404 assertion

• SSAE 10 or ISAE 100– e.g. SysTrust

• Process-based– KPIs– Fwd-looking info

• Hybrid - Data (where suitable criteria exist) or process

– EH&S– Social– Risks/ERM– Corporate governance

• Continuous assurance– Continuous audit process

using embedded software agents

Systems ReliabilitySystems Reliability

For Example- -For Example- -

The Real Time Economy

•Process Acceleration

•Sensors

•Dashboards

•ERPSs

•The Information bus (XML –XBRL)

•System Integration

•Re-engineering

Monitoring and Control Platform

FinancialAudit

OtherAssurance

Enterprise Risk Mgmt

Management Control ProcessesAssurance Processes

Other hybrid ProcessesShopFloorHuman

Capital

Cost

IT

Element Map:Financial and Non Financial Measures

• US GAAP/SEC financial statements

• Non-financial KPIs– Customer satisfaction– Customer retention– Market share– Product defects– Employee training– Employee satisfaction– Patents held– R&D spending– New product pipeline– Costs per transaction– Industry benchmarking– Revenue per… customer,

square foot, ton-mile

• Forward-looking information, NOT prospective financial statements

• Value measurement reporting collaborative (VMRC)

Financial & Non Financial MeasuresFor Example - -For Example - -

Forecasted Operating Data &

Performance Measures

Forecasted Financial Data

High-Level Data and Performance

Measures

Financial Statements and

Related Disclosures

Forecasted by Users

Forecasted by Users

Operating Financial

Linkage

Linkage

Element Map:Information Dissemination

• XBRL

• Customizable by users & flexible reporting by CPA

– Capital markets– Debt markets– Board of directors– Management– Regulators– Employees– Customers– Suppliers– NGOs

• Near Real Time

Information DisseminationInformation DisseminationThe Common Platform: XBRLThe Common Platform: XBRL

The Reporting Supply Chain

ExternalFinancialReporting

BusinessOperations

InternalFinancialReporting

Investmentand Lending

AnalysisProcessesProcesses

ParticipantsParticipants

AuditorsTradingPartners

Investors

FinancialPublishersand Data

Aggregators

Regulators

XBRL forRegulatory Filings

XBRL for AuditSchedules

XBRL forCredit Filings

XBRL for BusinessEvent Reporting

Software Vendors

ManagementAccountants

Companies

What

Element Map:Understandable Disclosures

• SEC plain-English

• VMRC

• Much more to be done here!

Understandable DisclosuresUnderstandable Disclosures

Plain English ?Plain English ?

Current Situation:Greek to the Average Person(Difficult to Understand)

Transform

Future State:Easy to Understand English

Understandable DisclosuresSpirit of TransparencySpirit of Transparency

Corporations have an obligation to providewillingly to shareholders and other stakeholdersthe information needed to make decisions.

The Three-Tier Model of Corporate Transparency

Tier OneGlobally Generally Accepted Accounting Principles

Tier TwoIndustry Based Standards

Tier ThreeCompany

Specific Info

Next Steps in Moving Forward

MISSION: To collaborate with

investors, creditors,

regulators, management, &

other stakeholders to improve the

quality & transparency of

information used for decision-making

I: Identification of key

stakeholders whose

collaborative involvement is

critical to successful

development & implementation

II: Overarching goal of making

better information available to investors & creditors,

helping them to see

organizations through the eyes of management

Special Committee on Enhanced Business Reporting

Customers of Enhanced Customers of Enhanced Business ReportingBusiness Reporting

Employees

Management

Auditors

Academics

Regulators

Standard Setters

Investors and Creditors

Customers Suppliers

Competitors

THE END GAME

IMPLEMENTATION of enhanced business reporting through collaboration with, commitment from, & support of:

SEC FASB Banks and other users Public Company Accounting Oversight Board (PCAOB) Large Fund Managers (e.g., Vanguard, TIAA-CREF) Council of Institutional Investors FEI Think Tanks (e.g., Brookings)

How is this going to get accomplished?

• The AICPA has established a Special Committee on Enhanced Business to reporting to Concurrently:– Identify the migration path needed to get it

done– Get Companies to Pilot ideas

And– Build consensus and support from users

Building upon the Building upon the FoundationFoundation

Historical Financial Statements

Enhanced Business Reporting

Lagging indicators…• Periodic• Historical• Cost-basis• Financial only• Statements• Looking backward

Leading indicators…• On-demand• Real-time/future• Value-basis• Comprehensive• Custom reports• Looking forward

Online, Real-time, Transparent, and Forward-Looking

UpStreamValue Chain

DownStreamValue Chain

Insider

Trading OthersGLTransactions

Exogenous Data SourcesExogenous Data Sources

Investors

External Reporting

Regulators Creditors LendersTax Website

Performance Measures

Performance Measures

Monitoring Control and Assurance

Reporting standards

On Demand -Aggregation/Benchmarking Layer

Questions?