FRC on Investor Needs from Performance Metrics
The UK’s FRC Labs – the research arm of the accounting standards setter and the audit regulator in that country – continues in its series of clear papers on key issues in reporting. The first in a set on performance metrics outlines what investors report that they need from public companies. There is plenty here to agree with. Investors say (inter alia) that they look for consistent disclosure of:
- metrics that provide insight into the company’s business model, strategy and competitive advantage and that measure its success
- metrics that demonstrate how the company creates long-term value
- metrics used internally to make business decisions and to manage, monitor and incentivise the achievement of the business strategy
- metrics that explain the company’s position, for example, its balance sheet strength, liquidity and market position
- the mechanics – transparency on how metrics are calculated and defined to help investors make their own assessments, with clear reconciliations from GAAP to non-GAAP metrics; and
- clear explanations of why metrics have been used and, in the case of non-GAAP metrics, why management think these are a more faithful representation of the value that has been generated by the company’s business model than the GAAP measures.
At XBRL International we are strongly of the view that performance metrics of this sort, disclosed as part of a company’s earnings pack, disclosed in a strategic or integrated report or contained in an annual or interim report, will, over time, be disclosed in Inline XBRL. This would provide some additional advantages. Metrics would:
- be directly consumable into analytic models
- be defined in a machine readable manner in a taxonomy, which helps with consistent interpretation as well as consistency of disclosure
- be accessible and discoverable; and
it would be immediately apparent which disclosures are GAAP and which are Non GAAP, and why.
Plenty more common sense from the FRCs report can be found here.