Robert Moorhouse, Corporate Strategy Director, Merrill Corporation | August 23, 2016
When I talk about financial reporting with executives and management at smaller companies, I usually hear some variation of, “It’s a complicated process. Despite years of experience, catching every error can be challenging and time-consuming.” But here’s one of the most interesting parts of the Financial Reporting Council’s (FRC) recent focus on reporting quality issues among AIM-quoted companies: the FRC says most companies have the resources and expertise on-hand; they’re just not making the most of them.
Smaller companies are wasting the expertise and resources they already have
More specifically, they identified two issues:
1) The Board and other key internal stakeholders aren’t engaged in the review process. More than half of respondents to the FRC’s survey said that internal stakeholders provide “only limited challenge to the annual report and financial statements.”
2) Auditors don’t have enough time to do a rigorous, complete audit. The FRC reported that “significant time pressure, was a contributing factor in lower quality reporting” and that “audit firms inform us that [poor quality audits] may, in part, be due to the lateness of receiving draft annual reports to review.”
Want to get the Board engaged? Make it easy for them.
Most stakeholders at smaller companies likely follow the overarching belief that reporting is a compliance exercise, not a driver of business value. So the first step is sharing the compelling findings of the FRC report — making your Board see how critical reporting quality is to your growth opportunities.
One aspect is to recognise that your Board and Audit Committee have a busy and full agenda. We need to unlock time and enable then to to take a full and active role — to get them to add their expertise in scrutinizing reporting drafts. We need to make it simple and painless for them.
That means giving them easy, anytime-anywhere access to drafts, so they can work on their own schedules. That means putting your reports into user-friendly formats that are easy to read and understand. And that means choosing a review and editing platform that uses familiar formatting and an intuitive interface (like the Microsoft Office-based interface of Merrill Bridge).
Better tools can speed up your timeline — and give your auditors the time they need.
Rushing leads to errors. Part of an auditor’s role is to catch errors. So when you don’t give your auditors enough time to do a rigorous audit, you’re wasting time and money.
In my last post, I shared how better reporting tools and technologies can help smaller companies significantly reduce the report generation timeline. Not only will this save time and cost on the front end, it will help you get reporting drafts to your audit team days or weeks sooner. With the time crunch eliminated, your auditors can deliver the full value of their expertise, and help ensure your reports are clean and accurate.
Create a continual cycle of reporting quality.
These efforts don’t happen in a vacuum. If you can convince your high-level stakeholders that reporting quality should be a critical business objective, it will be much easier to get the sign-off you need to implement a better reporting solution. With that solution in place, you’ll have the functionality to easily engage your stakeholders, and the efficiency to deliver drafts to your audit team sooner. With better tools and the full power of your existing resources at hand, you’ll create better reports that give investors the confidence they need to give you the capital you want. And once your Board starts seeing the first-hand results of improved reporting quality, you can bet they’ll be fully on board with your efforts.
Look for our final installment in our AIM reporting quality series.
In response to the FRC report, I’ve composed a special content series of advisory blogs and a white paper to help address the issues affecting AIM-listed companies. Look out for our final installment, which will include the white paper, "A cost-effective approach to high-quality reporting for AIM companies." This white paper will take a comprehensive look at how smaller companies are using new technologies to streamline reporting processes, automate reporting workflows and enable more efficient collaboration, enabling them to reduce reporting costs and improve reporting quality — and, ultimately, to increase investor confidence and create new growth opportunities.
If you would like to learn more about how Merrill Bridge can help with your reporting, don't hesitate to contact us or read our brochure.