Re-Writing The Script On Financial Reporting

Posted on November 16, 2017 by Editor

This is the second in a series of guest posts from Mohini Singh, ACA, Director, Financial Reporting Standards, CFA Institute.

For the past  six years, the narrative assigned to investors is they are drowning in information. This script emerged in 2011/2012 with publications such as the UK Financial Reporting Council’s Cutting Clutter and ICAS’s Losing the Excess Baggage.

These articles, well meaning and well thought out, excluded substantive investor input however.  To see if there was a different perspective, we surveyed our members and released our own publication, Financial Reporting Disclosures: Investor Perspectives on Transparency, Trust, and Volume. In it, we provided our views on investor priorities versus a standard-setter and regulatory focus.

The paper garnered particular interest for its views on technology and in response CFA Institute decided to conduct further research. One such report was Data and Technology: Transforming the Financial Information Landscape.

But what about our views on technology in the future?

So far, implementation of data structuring using XBRL has been seen as an extension of the financial reporting process that allows data capture at the end of the process for filing documents with regulators. Now however, we need a discussion of how technology can be utilized not only at the end of the process but at the very beginning to ensure the structuring of a greater amount of data in a more timely manner. We conducted a study to look at how technology can be harnessed to reform the reporting process end-to-end—in other words, to identify ways to effectively capture, manage, analyze, present, and deliver financial data.

The report shows how companies structuring data early in the financial reporting process would enjoy greater benefits and reduced costs, make the auditing process more efficient and allow for more effective regulation. But it’s not just issuers who reap the benefits.  Such a transformation would also ensure that investors receive more transparent information on a timely basis, leading to more effective investment decision making.

Ultimately, investors seek structured, quantitative data not bound by the format of the document in which the information is contained. With the availability of technology to sift through data and crunch the numbers, investors would be in a position to perform faster and better analysis.

With some of their finite resources freed up, analysts would be able not only to research more companies but also take a closer look at the companies they already follow, which would support better-informed investment decisions. Greater efficiency and higher-quality investment decisions are wins for the capital markets. Structured data can also bring bigger and better opportunities in small and mid-cap companies by making it easier and less costly for analysts to cover these companies.

Mohini Singh, ACA, is director of financial reporting policy at CFA Institute.

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