Despite changes in Washington, financial reporting initiatives remain a priority for regulators. In fact, it has been reported that the likely interim chairman of the Securities and Exchange Commission will move ahead with plans to modernize corporate disclosures.
During the Pacesetters in Financial Reporting conference last year sponsored by the Lubin School of Business at Pace University, Financial Executives International and Ernst & Young LLP, speakers discussed ways senior level financial executives can overcome internal and external challenges to making progress in disclosure effectiveness.
Some of the leading practices discussed at the event:
- Disclosure effectiveness needs to be cross-functional and include representatives from legal, investor relations, operations, finance, and other stakeholders.
- The initiative needs to be supported fully by senior management.
- Change the mindset internally to appreciate that periodic reports (e.g., Form 10-K, 10-Q) are not just a compliance exercise but serve as an important communication tool.
- Financial reporting teams need to understand the business operations, and operations teams need to understand the limitations of financial reporting, particularly when non-GAAP measures are used.
- Don’t start with the mentality that a company’s disclosure effectiveness initiative will reduce disclosures. Instead, the effort might identify the need to add disclosures to meet investors’ needs.
- Companies can take a phased approach for revamping their disclosures to work within internal resource constraints.
- Companies should start the initiative earlier in the year and socialize the proposed changes with various stakeholders, including external auditors and audit committee members, in a timely manner.
For a copy of the recently released report "Pacesetters in Financial Reporting Key takeaways from the conference hosted by Pace University, FEI and EY" click on the image below.