The Future of Financial Reporting

Presented by:

Liv Apneseth Watson

Director of International Business Development

WebFilings

Greater Philadelphia Chapter IMA

Continuing Professional Education (CPE) Conference

Temple University

Friday, December 7, 201212:30 pm – 2:10 pm

Failed Predictions

“The phonograph is of no commercial use”- (Thomas Edison, 1880)

“Everything that has been invented has been invented”

- ( Charles Duel, Director US Patent Office, 1899)

“Who the hell wants to hear actors talking?”- (Harvey Warner, 1927)

“I think there is a world market for about five computers” -(Thomas J Watson, Chairman, IBM, 1943)

“There is no reason for any individual to have a computer in their home”

- (Ken Oloson, President of Digital Equipment Corp., 1977)

“640k ought to be enough for anyone” - (Bill Gates, 1981)

Liv A. Watson

• IMA Member since 2006

• Active leaderships roles in local Evansville, IN. Chapter

• Active leaderships role in Lincoln Trail Council

• Active leadership roles in IMA National Board of Directors and several of committees.

Director Of International Business Development

About Liv Apneseth Watson Director Of International Business Development

Today Agenda

• TRENDS AFFECTING THE REPORTING PROCESS

OF THE FUTURE

• THE SOCIAL REPORTING REVOLUTION

• WHERE WILL THE JOURNEY TAKE YOU?

TRENDS AFFECTING THE REPORTING

PROCESS OF THE FUTURE

CORPORATE REPORTINGCritical for investor confidence

An essential element of corporate governance

Influences decisions and behavior of management

Influences decisions and behavior of shareholders and other stakeholders

Affects resource allocation (financial, natural and human resources) in

society

Influences perceptions of the company’s customers, vendors, and

employees

Shapes how a company sees itself and its role in society

CORPORATE REPORTINGCritical for investor confidence

An essential element of corporate governance

Influences decisions and behavior of management

Influences decisions and behavior of shareholders and other stakeholders

Affects resource allocation (financial, natural and human resources) in

society

Influences perceptions of the company’s customers, vendors, and

employees

Shapes how a company sees itself and its role in society

Source: Prof. Robert Eccles, Harvard Business School

The Future

Michio Kaku

“predicts that computer

power will increase to the

point where computers, like

electricity, paper, and water,

"disappear into the fabric of

our lives, and computer

chips will be planted in the

walls of buildings."

Future of Humanity: Planetary Civilization

Kaku ranks the civilization of the future,

with classifications based on energy

consumption, entropy, and

information processing.

Michio Kaku is an American theoretical physicist

Information

Will Be

Available via

a Ubiquitous

Internet

Computing

Power Will Be

Cheaper;

Internet Will

Become a

Broader

Platform

KEY TAKEAWAYS

Mass Collaboration and Peer Production Online Models Will Abound; Machine Readable Information a Must

Web Services Will Drive More Innovation

THE SOCIAL REPORTING REVOLUTION

“YOU CANNOT

MANAGE WHAT

YOU CAN'T

(OR DON'T) MEASURE"

K1

Slide 17

K1 this graphic does not make sense to me. it doesnt correlate well with the text. Can we get rid of this and make the text bigger?Korie.Downs, 11/9/2012

INTEGRATEDREPORTING

FINANCIALSTATEMENTS

CSRREPORTING

The Evolution of Corporate Reporting

GRCREPORTING

COMPLIANCEREPORTING

MANAGEMENT REPORTING

SUSTAINABILITYREPORTING

ENVIRONMENTALREPORTING

Subsidiaries

Overseers

Investment

Community

INTERNAL

STAKEHOLDERS

Infomediaries

Service

Providers

©2011 Brad Monterio

and Liv Watson

Investment

Community

Institutional Investors

Retail Investors

Infomediaries

Media

Social Media

Data Aggregators

Financial Publishers

Overseers

Regulators

Lawmakers

Policy Makers

Central Banks

NGOs

Community Groups

Associations

Service Providers

External Auditors

External Legal

Professional Services

Technology Vendors

Trading Partners

INTERNAL

STAKEHOLDERS

Management

Employees/Staff

Board/Governance

EXTERNAL

STAKEHOLDERS

INTEGRATED

REPORTING

STAKEHOLDER

ECOSYSTEM

GOOGLE SEARCH

�Environmental Reporting: 65 Million

�Compliance Reporting: 60 million

�Financial Reporting: 38 Million

�Management Reporting: 32 million

�CSR Reporting: 21 million

�Integrated Reporting: 7 million�Sustainability Reporting: 3 Million

�GRC Reporting: 2 million

“We’ve overspent our

financial, environmental,

social and governance

‘capital,’ and now the debt’s

come due.

Integrated Reporting is the

starting point to help us repay

that debt.”Brad J. Monterio

“This is a very important initiative that draws together the key actors across

financial, environmental and

social reporting. The concept of integrated reporting is coming

of age.”

Hans Hoogervorst,

Chairman, IASB

INTEGRATED REPORTING

“Integrated Reporting demonstrates the

linkages between an organization’s

strategy, governance and financial

performance and the social,

environmental and economic context

within which it operates. By reinforcing

these connections, Integrated Reporting

can help business to take more

sustainable decisions and enable

investors and other stakeholders to

understand how an organization is really

performing.”

The IIRC (www.theIIRC.org)

INTEGRATED REPORTING

�Evolution

�Journey

�Challenges Missing Links

�Story Opportunities

�Economic value

WHY PRACTICE

INTEGRATED REPORTING

�Shows commitment to being sustainable

�Helps integrate sustainability into strategy and operations for a better managed company

�Commitment to sustainability is good for shareholders

� Improves engagement with other stakeholders, especially employees and customers

� Improves reporting transparency

�Simplifies external reporting

�Positions company as leader and innovator

WHY PRACTICE

INTEGRATED REPORTING

� Improves relationship with investment community

� Enhances access to capital

� Strengthens relationships within communities through stakeholder engagement

� Improves reputation and strengthens brand

� Meets compliance/regulatory needs

CSR

REPORTING

TRENDS

CSR

REPORTING

TRENDS

CSR

REPORTING

TRENDS

CSR

REPORTING

TRENDS

CSR

REPORTING

TRENDS

Country 2002 (%) 2005 (%) 2008 (%)

France 14 40 73

Spain 27 44 70

Italy 66 70 61

UK 53 53 55

Denmark 45 31 46

Netherlands 38 40 44

Australia 42 43 42

South Africa 100 22 36

Sweden 15 5 33

Finland 29 19 30

Norway 20 33 30

Japan 26 31 24

Canada 10 10 19

USA 2 3 14

Source: KPMG International Survey of Corporate Responsibility

Reporting 2008, p. 56-58

CSR REPORTS WITH FORMAL ASSURANCE STATEMENT

� “Closing the non-financial books” on time

� Required level of inter-functional coordination

� Deciding on appropriate level of detail

� Deciding what’s material or not

� Lack of agreed-upon standards and audit (vs. assurance) methodologies

� Poor understanding of the relationship between financial and non-financial performance

� Getting the attention of investors for non-financial information

CHALLENGES TO INTEGRATED REPORTING

MISSING LINKSStandardization

Comparability

Materiality

Complexity

Stakeholder engagement

Assurance

Trust

MISSING LINKSStandardization

Comparability

Materiality

Complexity

Stakeholder engagement

Assurance

Trust

OPPORTUNITIES�Tell your story your way

�(re)Build trust

�Grow economic value

�Restore the balance

�Improve transparency

�Manage entire supply

chain

�Mitigate reputation risk

�Save money

�Build long term value

�Attract capital

LEADING

REPORTERS

HOW TO SPEED ADOPTION?�Missing links need to be

connected�Companies must take

responsibility to act � Innovation by many

constituencies is necessary�Support from investment

community vital�Standards essential – XBRL

is part of it; must be global�Legislation and regulation

will ultimately be required�Support from civil society

will encourage others to act

Statement Calls for Policies to Unlock the Vast Potential of Low-

Carbon Markets and Avoid Economic Devastation Caused by

Climate Change

(London) – The world’s largest global investors have a powerful

message for climate negotiators in Cancún and all national

governments: Take action now in the fight against global warming

or risk economic disruptions far more severe than the recent

financial crisis.

The statement was signed by more than 250 investors from Europe,

United States, Asia, Australia, Brazil and South Africa, with collective

assets totaling over US$ 15 trillion—more than one-quarter of

global capitalisation. Signatories included the global giants Allianz

Global Investors and HSBC Global Asset Management, as well as

many of the largest European pension funds and a dozen US public

pension funds and state treasurers. It is the largest-ever group of

investors to call for government action on climate change.

Thursday, November 18th, 2010

INVESTMENT COMMUNITY SUPPORT GROWING

CHAOS OF FRAMEWORKS

SOLUTION MUST BE GLOBAL

“Sector, country-specific and

proprietary frameworks for

reporting on sustainability are at

odds with what the market needs

today. Solutions need to be global,

uniform, consistent, comparable

with current needs and extensible to

meet current and future needs; they

need to help the market understand

an organization‘s sustainability

practices, no matter in which

country or industry sector they

operate.”

- Liv A. Watson & Brad J. Monterio

Soft versus Hard CSR Laws

Rio 20 – 2012 Brazil, Denmark, France, and South Africa have created a self-named group called “Friends of Paragraph 47”

Grenelle II law

Extra-financial information

ISAE 3000 and the AA1000.

Ad Hoc Data

http://www.sseinitiative.org/publications/

http://www.responsibleresearch.com/Responsible_Research___Sustainable_Stock_Exchanges_2010.pdf

• 75 Banks

Agreements, standards and recommendations

SEC Adopts Rule for Disclosing Use of Conflict MineralsWashington, D.C., Aug. 22, 2012

• The Securities and Exchange Commission today adopted a rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act to require companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (DRC) or an adjoining country.

• The minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the company.

• Congress enacted Section 1502 of the Act because of concerns that the exploitation and trade of conflict minerals by armed groups is helping to finance conflict in the DRC region and is contributing to an emergency humanitarian crisis. Section 1502 of the Act amends the Securities and Exchange Act of 1934 to add Section 13(p).

• Companies will file their first specialized disclosure report on May 31, 2014 (for the 2013 calendar year) and annually on May 31 every year thereafter.

• The final rule requires a company to provide the disclosure on a new form to be filed with the SEC (Form SD).

http://www.sec.gov/news/press/2012/2012-163.htm

The minerals involved in this trade – cassiterite (tin ore), coltan (tantalum ore),

wolframite (tungsten ore) and gold – are traded into international supply chains and

used in the production of consumer goods such as laptops, cell phones and jewellery.

http://hausercenter.org/iri/about/global-csr-disclosure-requirements

CSR Reporting Challenges

CONTENT & STRATEGY

PROCESS

Access and control

Data aggregation

Version control

Collaboration

Lack of standards & frameworks

Level of detail

Materiality

Linkage: financial & non financial performance

�Helps CSR report

preparers eliminate

or minimize these

process challenges

�Allows company to

focus on content &

strategy

�Frees up time to

better tell the

company “story”

CSR Reporting Pain Points

#1

Excel works poorly

with Word

#2

No supply/value

chain collaboration

or version control

#3

Managing change is

difficult

Copyright 2012 WebFilings LLC Company Confidential

#4

End-game crunch

#5XBRL

Compliance

WHERE WILL THE

JOURNEY TAKE YOU?

“� in this networked world, there is a need for

greater flow of knowledge across boundaries.

�. knowledge needs structure - without structure

you cannot retrieve it efficiently and you cannot

personalize

�the internet has facilitated access to

information, but complicated the task of

identifying relevant knowledge”

The Information Overload Challenge"

Source: Quotes from TFPL Taxonomies for Business conference, London 23 October 2000

XBRL is the

electronic

language for

business

information

exchange

XBRL a 2007 Breakthrough Idea!Here Comes XBRL

Looking at XBRL in Different Ways

• A freely available, market-driven, open, global standard for exchanging business information

Looking at XBRL in Different Ways

• XBRL is a means of modeling the meaning of

business information in a form

comprehendible by computer applications

XBRL is a formal description

of concepts, terms, and

relationships within a given

knowledge domain.

Validation

Standardization

Adding Meaning to Electronic Data

CalculationCash = Currency +

Deposits

FormulasCash ≥ 0

Contexts

US $

FY2004

Budgeted

LabelcashCashEquivalentsAndS

hortTermInvestments

ReferencesGAAP I.2.(a)

Instructions

Ad Hoc disclosures

PresentationCash & Cash Equivalents

XBRL

Item

XBRL

Item

PresentationComptant et Comptant

Equivalents

Presentation

Geld & Geld nahe Mittel

Presentation

Kas en Geldmiddelen

Presentation

现金与现金等价物

Presentation

現金及び現金等価物

Presentation

Деньги и их эквиваленты

Presentation

Гроші та їх еквіваленти

Intelligent Machine Readable Data

“Adoption of new technologies never occurs as

quickly as we expect – but the impact is far greater

than we realize.”

- Cringley’s Law

The Benefits

GRI and XBRL

Source: https://www.globalreporting.org/resourcelibrary/GRI-Taxonomy-Implementation-Guide-2012.pdf

The goal of this document is to

provide guidance to people

who use the GRI

Taxonomy to either report

sustainability information or wish to

receive it.

Different types of users of the GRI XBRL taxonomy

• Reporters:

– Organizations who disclose their sustainability performance

• Filing agent:

– Organizations creating a report on behalf of another organization

• Consumers:

– Organizations that use information provided by reporters

• Extenders:

– Organizations that create an XBRL taxonomy reusing the work done

by GRI

• Regulators and governmental agencies:

– Organizations that adopt the GRI Taxonomy to define reporting

requirements to be provided by filing organizations

• Software vendors:

– Organizations that embed the GRI Taxonomy in their solutions

GRI’s XBRL Voluntary Filing Program

• GRI Taxonomy 2012 / G3. and G3.1.

• GRI Taxonomy enables organizations to tag their

sustainability data in reports

For More Information Contact: XBRL@GlobalReporting.org

Paul Simpson, CEO Carbon Disclosure Project

Greenhouse gas emissions and global warming are amongst the most material and

commonplace sustainability challenges addressed

Why Disclose CDP data?

KEY TAKEAWAYS

Corporate reporting is evolving

Many new data sets are non-financial

CSR is leading into integrated reporting

XBRL mandates: CDP, GRI and IIRC

Structured Data is here to stay!]

Innovation

Liv A. Watson

Director, New Markets

liv.watson@webfilings.com

www.webfilings.com

Author or contributing author to the following books:

Liv A. Watson