disclosure effectiveness - ey · preparation time. page 7 disclosure effectiveness ... early and...

Disclosure effectivenessInspire greater market confidence, introduceefficiencies and better align communications with yourstrategic direction

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Con

tent

s Corporate disclosures: recent trends and findings

Disclosure effectiveness: why it matters to you

About EY and our team

Corporate disclosures: recent trends andfindings

Disclosure effectiveness

Attending to disclosure is critical

► Tell your story to key stakeholders – shareholders, creditors and analysts► Focus on an organization’s short-, medium- and long-term strategy and prospects► Improve the value ascribed to leading organizations by inspiring greater investor and

market confidence► Promote financial reputation and corporate brand► Are an important part of your organization’s operations and internal controls► Require significant cost, time and effort to provide while tying up key company

resources► Are mandated by the SEC, stock exchanges and other regulators - failure to adequately

meet regulatory expectations may result in penalties and regulatory actions► Are subject to quarterly and annual certification to the SEC by your CEO, CFO and

chief accounting officer or controller► Frequently change, but are an important facet of your board and audit committee

oversight

Effective corporate disclosures are essential because they:


Disclosure effectiveness survey

A recent EY survey highlighted that enhancing the effectiveness of disclosures is ofparamount importance to companies, investors, creditors, regulators and the capitalmarkets at large. Capital markets changes, along with technological advances in the pastdecade, have altered how investors “consume” and analyze information.

This has compelled many companies to take a fresh look at how effectively they “tell theirstory.” While the regulatory bodies examine ways to modernize the disclosure framework,companies are differentiating themselves by adapting to investor demands andexpectations, voluntarily.

Why we embarked on this research


Disclosure effectivenessWhy are companies embracing the call to action?

Financial reporting that accurately reflects economic and business realities has never been more important.

We talked to

120+key participants in thefinancial reporting process.

Including CFOs, CAOs, controllers and directors of SEC reporting

Participants covered a wide range of sectors, including manufacturing,life sciences, health care, pharmaceuticals, electronics, technology

Annual revenues of $5m to $50b

We know that

of responding companies

arealready taking actionto improve their financial reporting disclosures, with still othersplanning to take action in the near term.

have seen

improvement infinancial communication.

have seen

improvement inprocess efficiencies.

have saved or expect to save at least 1–3 days of

financial reportingpreparation time.


Disclosure effectiveness (contd)Why are companies embracing the call to action?

Start addressing changesto financial reportingearly

And remember thatdisclosure effectiveness is acontinuous process

Clearsnapshotof the company “story”

Claritythrough an internalprocess to improve reportcontent and enhanceconnection strategy

Improvementof financialcommunication andprocess efficiencies

Better investmentdecisionsas the quality ofdisclosures matters toinvestors and analysts

We confirmed there are real benefits to improving financial disclosures.

Companies should


Disclosure effectiveness (contd)Are companies ready to respond to the pressure?

Calls for improvements in financial reporting is coming from the top.

Engaged relevantstakeholdersfrom the start such as seniormanagement, internal andexternal counsel, investorrelations and external auditors

Discussedplanswith the audit committee

Set theright toneat the top

focusing on

disclosing material informationand eliminating immaterial information

focusing on

eliminating outdated information

focusing on

reducing redundancies, includingusing more cross-references

Biggest reasonscompanies aremaking changes management team

and senior-level executiveinfluence

SEC’sinitiatives

Companies are focused on three key areas related to disclosure effectiveness Companies that have been successful have


Disclosure effectiveness (contd)What should companies do to get started?

Companies have started proactively making changes. But it’s not too late to get started.

Understand where youare in your disclosureimprovement efforts. of companies are already

taking action to improvetheir financials.

have a dedicatedgroup meeting regularlyto discuss.

Three areas of the SEC report that companies have seen improve the most:

managementdiscussion andanalysis (MD&A)

notes to thefinancial statements

business items

Many companies have started the process with annual and quarterly reports, while some have focused on earningsreleases and proxy statements.


Disclosure effectiveness key success factorsWhat are the top 10 actions companies should consider taking?

Start earlyStarting as early as possible in the reportingcycle is important, as most changes requiretime to design, review, approve andimplement.

Engage relevant stakeholders fromthe startEngaging key stakeholders within thecompany, such as senior executives,controllers, heads of SEC reporting,investor relations, and in-house or externalcounsel can help they understand the planand provide relevant feedback.

Discuss your plans with the auditcommitteeIncreasingly, disclosure effectiveness isbeing added to the agenda. You candiscuss their views on matters they careabout and share what other companies aredoing to improve financial reporting.

Challenge yourself and ask “how canour disclosures be more effective forinvestors?”Taking a fresh look at opportunities to makedisclosures more understandable, meaningfuland effective can help improve the alignment ofyour vision and strategy across all yourcommunication channels — which ultimatelycan translate into greater market confidence.

Addressing “low-hanging fruit” mayprovide a good start toward buildingmomentumRemoving immaterial information, redundantdisclosures and outdated information mayprovide a good start for disclosureimprovement, but consider plans for morerobust efforts, including holistic changes acrossall financial communication channels.

Consider content and presentation ofinformationIn addition to improving the content ofinformation, consider ways to improve thepresentation of information through greater useof bullet points, tables, charts and graphics. It isbetter to communicate rather than simplydisclose.

Don’t be afraid to consultProactive communication with keystakeholders, including the SEC and yourexternal auditors should be considered, sothey understand the rationale for anychanges made.

Optimize the use of technologyInvestors are adapting to technologicaladvances in how they consume informationused in decision-making. You can consideropportunities to leverage new technologiesto enhance the content and messagingprovided on your website and, specifically,investor relations page.

Remember that disclosureeffectiveness is a continuousprocessFinancial reporting improvements are acontinuous process, as reporting shouldconstantly adapt to changes in thebusiness, regulatory environment,accounting rules and technology.

Set the right tone at the topThe management needs to be empowered,along with proactive support efforts to focuson disclosure effectiveness.

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Stakeholders’ information needs are evergrowing

Strategicobjectivesand plans

10-K’s and Qsannualreport

Governance,compensation,

other proxydata

Operationaland MD&Ainformation

Investorsand other

stakeholdersC-suite

Financialdata and KPIs

Risks andregulatoryaspects

Sustainabilityand social

responsibility

Your corporate disclosures must strike the right balance

Today’s challenge isoptimizing marketcommunicationswhile reducing costsand time, and meetingregulatoryexpectations.

Obviously, the mostdirect measure of

effectiveness is yourcompany’s share

price, liquidity, andlevels of market

confidence and trust.

Your investors desire much more information – financial,nonfinancial, operating and strategic – provided through

numerous means.

Are investors giving you the credit you deserve?


Why act now?

► Better align vision, strategy and competitive advantage, and improve marketconfidence► Create synergies between strategic, operational, financial and sustainability messaging

► Regulatory impetus to “put better disclosure into the hands of investors”► SEC encouragement to experiment with filing presentation with the overall objective of improving

the transparency, quality and relevance of disclosures

► Demonstrate industry leadership by promoting your financial reputation and brand► Many companies, including peers, are taking action to stay ahead of the curve

► Reduce costs and burden and introduce efficiencies with an effective disclosureprogram► Meet regulatory expectations more efficiently and in a timely manner

► Manage market turbulence during a period of rapid accounting standard and disclosurechanges► Reduce investor and analyst surprise by providing a clear picture of risks and opportunities


Examples of what companies can do now

► More entity-specific tailoring► Use of layering► Use of bullet points, graphs, charts and tables► Use of cross-references► Materiality reconsiderations► Selectiveness in disclosure of significant accounting policies► MD&A transformation

► MD&A continues to be one of the top focus areas in SEC staff comment letters.► FR-72 encourages companies to focus their MD&A on material information from

management’s perspective.► Overview needs to continue to evolve over time and avoid generic or boilerplate

language► Clear disclosure of key performance indicators, financial or nonfinancial, are used to

manage the business.► SEC regulations require the discussion of risk factors to be “concise and organized

logically.”


Why effective disclosures matter

Effective disclosures not only support highly effective market and investor communications, but also produce internalcommunications that are aligned with and promote a company’s strategic goals.

Representing yourprogress onstrategic goals toexternalstakeholders

Developing anddefining theoverall strategyfor yourorganization

Funding,enabling andexecuting strategyset by CEO

Leading keyinitiatives in finance thatsupport overallstrategic goals

Providing insightand analysis tosupport CEO andother seniormanagers

Enablingbusiness decisionsto be grounded insound financial criteria

The CFO'scontribution

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2

34

5

6

Investors

Creditors

Analysts

Regulators

Board ofdirectors

Corporatedisclosures

Managementand

employees

Otherstakeholders

The DNA of the CFO, a study of what makes a CFO, EY, 2010; Finance Forte, the future of finance leadership. EY, 2011.


Critical questions you should askConsiderations to build and sustain an effective and efficient program

Reliable processesand documentation

Alignment ofcommunication —

keepingone voice

Regulatorycomplianceoversight byinternal audit

Deliveryin time and tospecifications

Coordinatingall internal

stakeholders’ rolesand

responsibilities

Supporting systemsand infrastructure

Effectivecorporatedisclosureprogram

Annualreport

Proxystatement

Earningsrelease

Analystpresentation

SustainabilityreportsWebsite

and socialmedia

Earningscalls

Regulatoryreports

Managerialreports

Riskreports

Boardreports

10-Ks andQs

C-suite,board and audit

committee

Investorrelations,

communicationsand

strategy

Corporateresponsibility

and governance

Legalrisk, tax and

compensation

Finance,controllership,

FP&A anddisclosurecommittee

External andinternal auditors

Content► Is this predominantly a compliance exercise or do you

also see it as a vehicle for strategic messaging and thetelling of your broader story?

► Is the format and presentation user-friendly? Candisclosures be better written, more effectively organized,streamlined or eliminated?

► How well do you compare with your peers?

Process► How painful is the financial reports close process –

can you take out any costs, angst or time?

► Is the process well understood, automated and integratedacross divisions globally?

u Do you have a robust process to address upcomingaccounting and regulatory changes?

Connectivityu Have you considered the connectivity or feedback loop

among internal parties and the integration with otherinformation outside of the financial statements?

► How do your KPIs relate to information you provide in thefinancial statements and MD&A?


How EY can helpOur DRiVER assessment provides numerous benefits

Our Disclosure and Reporting Integrated Value Enhancement Review (DRiVER) can assist you indeveloping a holistic, comprehensive and actionable top-down view of the effectiveness of your strategicand financial messaging as well as your disclosure program overall. It will help:

u Protection andpromotion of financialreputation andmarket confidence

u Alignment of internaland externalcommunications withtop strategicgoals and provide fora feedback loop

u Enhanced auditcommittee reviewand oversightprocess

u Reduction of costsand cycle time

u Better communicationwith investors andother essentialstakeholders

u Greater synergiesbetween strategic,operational, financialand sustainabilitymessaging

u Enhanced disclosurecontrols, datacollection, deliveryand analysis at allorganizational levelsand in allgeographies

u Accelerated closeprocess


Our DRiVER assessment processD

RiV

ERas

sess

men

t

Compare your disclosures against those provided by your peers and also contrast with analysts’ expectationsand information needs

Gain an understanding of the systems and processes involved

Evaluate your KPIs and alignment of their internal and external communication

Evaluate your corporate disclosures from content, processes and outcomes perspectives

Evaluate the internal alignment of your messaging and communications not only in your 10-Ks or 10-Qs,but also across other pertinent disclosure means such as investor presentations and earnings releases

Meet with members of your team who play a key role in the process to obtain their feedback; when a disclosurecommittee exists, meet with its key members

Provide you with a report summarizing our observations and recommendations, and meet with your team todiscuss them

Identify areas that can be improved, streamlined, automated or bolstered

Assessments typically take three to four weeks to complete with limited burden on the company’s time.


Disclosure transformationA blueprint for change

Our DRiVERassessment willassist in developinga holistic,comprehensive andactionable top-downview of theeffectiveness of yourstrategic andfinancial messaging.

After reviewing your reporting and disclosure program, our team can work with you while youidentify needed changes and begin implementation. We can assist in redesigning processesand content as well as help you build a sustainable new framework for all of your financialcommunications. Key outcomes may include the following:

► Achieve highly effective market and investor communications, in part by reducing volumeand “clutter” and linking strategy to performance

► Offer a clear definition and measure of KPIs, including non-GAAP metrics► Produce internal communications that are aligned with externally reported goals and

provide for feedback loops► Streamline reporting processes, especially those relating to the financial statement close► Streamline and bolster disclosure of internal controls► Provide an integrated approach for disclosures, MD&A and information shared in earning

calls and other investor presentations► Establish an efficient means for data aggregation and deploy across all operating units,

regions and back-office departments► Position your reporting process to support strategic and operational insight► Streamline the use of websites, social media and other digital technologies► Address the distinct information needs of stakeholders► Sharpen awareness of the variety of corporate, accounting and regulatory events that

trigger the need to re-examine your disclosure program

Deliver SustainDesignAssess Build


A blueprint for change

The blueprint we have provided clients hasincluded the following:► A comprehensive report summarizing our

findings and observations► Recommendations for process efficiencies and

content enhancements► Recommendations for strengthening

disclosure governance and oversight based onleading practices

► “Marked-up” annotated reports (e.g., 10-K,annual report, investors presentations)highlighting areas that can be enhanced

► Peer comparisons► Examples of leading practices► Assistance in evaluating items that the client

may wish to implement► Assistance in prioritizing and creating a road

map for effective and sustainableimplementation

About EY


Why EYExperiences and insights to address your challenges

Experienceand technicalknowledge

Our team combines the unique skill set of deep and sophisticatedinvestor and financial statement user experience with technicalaccounting and SEC reporting knowledge to help you develop andmanage the disclosure effectiveness transformation process.

Flexible,integratedandcollaborativeapproach

Our comprehensive and tailored approach includes a diagnosticassessment of your financial statement disclosures, MD&A and investorand analyst presentations.

Our collaborative approach involves constant interaction with you andyour team, and collaboration with other EY subject matter resources todevelop a customized approach to address your company’s specificneeds.

Certain of our services for an audit client and its affiliates may be more limited in order to comply withapplicable independence standards. Please reach out to your EY contact for further information.


Financial Accounting Advisory ServicesContacts

Neri BukspanFAAS

[email protected]+1212 773 3115

Jonathan NusFAAS

[email protected]+1 212 773 8817

https://my.ey.net/Person.aspx?accountname=US%5C%5Cnusjo1

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction andadvisory services. The insights and quality services wedeliver help build trust and confidence in the capital marketsand in economies the world over. We develop outstandingleaders who team to deliver on our promises to all of ourstakeholders. In so doing, we play a critical role in buildinga better working world for our people, for our clients and forour communities.

EY refers to the global organization, and may refer to one ormore, of the member firms of Ernst & Young Global Limited,each of which is a separate legal entity. Ernst & YoungGlobal Limited, a UK company limited by guarantee, doesnot provide services to clients. For more information aboutour organization, please visit ey.com.

© 2016 EYGM Limited.All Rights Reserved.

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ED NoneIn line with EY’s commitment to minimize its impact on theenvironment, this document has been printed on paper witha high recycled content.

This material has been prepared for general informational purposes onlyand is not intended to be relied upon as accounting, tax, or other professionaladvice. Please refer to your advisors for specific advice.

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