Tensions between traditional and extended company reporting laid bare in new report

Tuesday 13th March 2018

Some three-quarters of the chief financial officers of New Zealand public companies are either unaware of or not interested in emerging methods for extending reporting beyond traditional financial indicators, according to research by the McGuinness Institute.

Conducted for the External Reporting Board, an independent Crown entity responsible for setting standards of corporate reporting in New Zealand, the research found that only 23 percent of the 92 CFOs who responded to the survey were using an externally developed EER reporting framework, and that the vast majority either did not know about or appeared to be "not interested" in them. EER stands for extended external reporting.

The survey found that 84 percent of those who prepare corporate reports for external audiences were either unaware of or skipped the question asking whether they knew of the EER framework known as the Global Reporting Initiative, which seeks information on a far wider range of environmental, ethical and social indicators than traditional company financial accounts.

Three other common EER frameworks also scored in the 80s and 90s for either being unknown or the question unanswered.

The survey was sent last year to all NZX-listed companies and the Deloitte Top 200 New Zealand companies. A second survey was sent to a range of potential users of such reports, including investors, industry organisations, not-for-profit organisations, and universities, prompting 104 responses.

Sharply divergent views emerged about the worth of such reporting, with some 10 percent of such report's potential users labelled 'EER sceptics', another 20 percent as 'pragmatic sceptics', 30 percent were 'EER supporters' and 40 percent were 'pragmatic supporters', the latter group seeing EER reporting as in the public interest, but needing to be balanced with private good.

Pragmatic supporters believe "New Zealand is lagging behind international reporting practices; in particular companies are not reporting well on the wide range of risks they face" but are also wary of too much information being required and "the large number of different frameworks in the public arena".

The smaller, sceptics group focused on the cost and practicality of EER reporting.

"The people going down this track need a dose of reality, or is socialism the goal?" said one respondent.

Another feared "another unnecessary layer of bureaucracy" if companies were required to report against a wider set of benchmarks, which could include health and safety performance, the gender split of a workforce, environmental compliance, company tax payments, cybersecurity breaches, and average payment terms.

Significant gaps emerged between report preparers and users on the value of reporting on the so-called 'four capitals' - natural, human, economic, and social.

On each, respectively, the percentage of preparers versus users favouring reporting was 56:87 (natural capital); 53:86 (human), 46:84 (economic); 42:75 (social).

The chief executive of the XRB, Warren Allen, said the research was part of a drive to improve the quality of New Zealand companies' reporting, and that it "did not improve as rapidly as we had anticipated" between 2011 and 2017".

"We are confident that if New Zealand as a nation desires better reporting, the change from 2018 to 2025 could position New Zealand as a world leader in EER, not only improving investment decisions but also reinforcing our clean green brand."

Some 56 percent of those who prepare company reports thought they should receive independent assurance, against 76 percent among users.

"Compliance cost would be an unnecessary cost and a barrier to completion," said a comment from one report preparer.

However, if independent assurance for EER reports were made mandatory, both preparers and users put more faith (45 percent and 41 percent respectively) in the XRB as the body to set the requirements. Other options were the Financial Markets Authority, favoured by 20 percent of preparers and only 12 percent of users; legislation (18 percent vs 27 percent), and the NZX (11 percent support from both groups).

The report quoted one independent assurer as saying that: "in my experience, company systems for reporting this information are not mature and they are more prone to error", with risks to "issues of balance" and "potential bias towards a more positive story".

(BusinessDesk)

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