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Paradigm shift in corporate reporting
Africa is home to an unparalleled variety of flora and fauna and is also a global nature hotspot. Many of its ecosystems are under threat from deforestation, poaching, climate change, and urbanisation.
The reporting landscape today is starkly different from decades ago when investors relied significantly on financial statements as the primary source of information to understand the financial position and performance of an organisation.
However, it is important to acknowledge the influencing factor that played a disproportionate role during this era—the low level of complexity and stability within the operating environment.
This factor implied that the focus for organisations revolved around the preparation of financial information that provided disclosures looking backwards. In addition, there was a global consensus on the need to standardise financial reporting with the adoption of IFRS globally, allowing different jurisdictions worldwide to speak the same business language.
This journey of IFRS accounting standardisation facilitated capital flows worldwide in search of solid investment returns and delivered tangible outcomes for global capital markets.
However, while this previous model for corporate reporting was fit for purpose at the time, numerous trends across the operating environment are propelling a shift in corporate reporting towards an outcome that now delivers insights beyond traditional financial reporting.
One important factor driving this shift is the high level of complexity and uncertainty that organisations must navigate today.
To thrive and succeed today, organisations must provide investors with information that offers insight into the capabilities and competencies required to compete favourably in the present and future.
There is also a need for speed in decision-making, considering the impact of technology across businesses and the massive amount of data required for reporting.
It’s no coincidence that organisations have recently identified an urgent need to modernise their finance function, aiming to spend less time on operational tasks such as report preparation and more time on value-adding tasks, including business insights and analysis.
Finance transformation is, therefore, an important part of making this paradigm shift within an organisation’s reporting function.
Another important driver is the interrelationship between the impact of non-financial issues (ESG and sustainability-related matters) on the financial prospects of an organisation over the short, medium, and long term. Investors are demanding that organisations provide information on sustainability-related issues and how they impact their cash flows, financial performance and position.
A recognition that the old approach to reporting is no longer sufficient to meet their expectations and demonstrating the need for a paradigm shift in corporate reporting.
The writer is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.
