What do investors and analysts really want to learn from your financial statements? And what are their areas of focus? Gregory Johnson, a PwC director who leads our investor outreach program, joined me on a recent episode of PwC’s accounting and reporting podcast series to answer those questions (and more).
In our discussion, Gregory explained how PwC renewed our concentrated focus on investors and analysts about six years ago. We wanted to have first-hand discussion about what investors and analysts look for from financial reporting and the challenges they experience.
So what has he learned over the years from investor outreach? Not surprisingly, investors want comparable, transparent, consistent and timely information. Investors have expressed concerns that disclosures are getting more boiler-plate and aren’t saying much to the investor. They want more timely and quantifiable information, especially in disclosures related to the adoption of new accounting standards. Sound familiar? We’ve heard it before as it’s been a trend in SEC comment letters over recent years as well.
But it doesn’t stop here. Investors also want to understand areas that require judgment. Gregory shared with me investors’ views on segment and non-GAAP reporting. He explains that investors want to understand the rationale for changes in segment reporting. Preparers are obviously focused on reporting accurate segment numbers, but investors also want explanations of why the presentation of those numbers may have changed from the prior period. Gregory notes that wanting to understand management’s rationale for changes is similar to the trend in non-GAAP measures. The use of non-GAAP measures has dramatically increased over the last two decades (in 1996 59% of the S&P 500 used at least one non-GAAP financial measure compared to 97% to 2018). While investors generally like the additional information provided by non-GAAP reporting, they have expressed some frustration over changes in those measures that aren’t accompanied by an explanation of the reason why, and with the lack of comparability of similarly titled non-GAAP measures across companies in the same industry. For additional information, listen to our Non-GAAP financial measures podcast episode.
“Risks and uncertainties is another area where we hear a fair amount of feedback from investors,” Gregory adds. These disclosures should evolve with current events. Investors want to understand the impact of cybersecurity, Brexit, and trade tariffs on the business. They want to know how companies will be impacted and if that impact will be significant. Gregory cautions that “when you don’t give that full transparent information, you leave room for speculation… there are a lot of consequences to not putting information out in the marketplace.”
Tax reform and share repurchase are other hot topics in the investor community. Investors want to know if excess cash is being spent to repurchase the company’s shares, and how that impacts the company’s financial statements.
So what should companies do? Gregory suggests preparers “put yourself in the shoes of the investor.” Provide the information you would want “if you were trying to allocate capital... give them the information that they need to really make... good decisions.”
Finally, Gregory provides an update on some recent SEC proposals on earnings releases and quarterly reporting, including the reaction to these proposals in the investor community.
Want to learn more? Be sure to check out our “Investor perspectives on reporting: 5 things you need to know” podcast, available on our website or wherever you get your content. Enjoyed this episode and want more? Subscribe to our weekly accounting and reporting podcast series.
Heather Horn is PwC’s National office thought leader and the engaging host of PwC’s accounting and reporting weekly podcast series.