XBRL & Enhanced Business Reporting: A Consortium Approach Dr. Robert G. Eccles XBRL International...

XBRL & Enhanced Business Reporting: A Consortium Approach

Dr. Robert G. Eccles XBRL International

April 27, 2005

Boston, USA

2

Wait a minute… enhanced business reporting, improving the reporting model…

• Didn't Sarbanes-Oxley § 404 lead to improved internal controls and result in better information?– No…..SOX targeted improved internal controls over

financial reporting, however…

– Investors, creditors and business executives do not use the financial statements as their primary tool when making decisions about the allocation of capital

• Then, what information is important?

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Research tells us what is important

• Provide shareholders and others with information needed to

make decisions– Financial and nonfinancial value drivers

– Tangible and intangibles assets

• In general, many measures require information from

outside the Company's financial or business systems

• Vast majority of measures are not subject to standards or

reporting frameworks of any kind

Enhanced Business Reporting = Better Information

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• Loan Loss

• Earnings

• Capital Adequacy

• Risk Management Practice

• Customer Retention

• Customer Penetration

• Asset/Liability Management

• Asset Quality

• Return on Risk Adjusted Capital

• Capital

• Management

• Quality of Management

• Plans for Growth

• Market Growth

• Fee-based Revenue Growth

• Delivery Channels

• Economic Profit

• Performance by Business Segment

• Market Risk Exposure

• Cost/Income

• Market Share

• Assets Under Management

• Employee Satisfaction

• Brand Equity

• Product Innovation

• Investment Performance

• Degree of Diversification

• Regulatory Reputation

• IT Expenditures

Banking Insurance


• Expense Ratio

• Capital Management

• Risk Management Practices

• Plans for Growth

• Investment Performance

• Distribution Channels


• Earnings

• Asset/Liability Management

• Return on Risk

• Adjusted Capital

• Market Growth

• Customer Retention

• Capital Adequacy

• Claims Ratio

• Economic Profit

• Employee Satisfaction

• Customer Penetration

• Market Risk Exposure

• Assets Under Management

• Asset Quality

• Embedded Value

• IT Expenditures

• Brand Equity


• Regulatory Reputation

• Market Share

PwC ValueReporting capital markets research

Source: PwC ValueReporting Capital Markets Survey

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Investment Management High Technology

• Profit Margins

• Investment Product Performance


• Asset Growth from Investment Performance

• Asset Growth from Product Cash Flow

• Employee Retention

• Compensation Levels of Professional Staff

• Asset Retention

• Competitive Landscape

• Product Diversification Strategy

• Compensation Strategy

• Investment in Technology to Improve Business Processes

• Assets under Management

• Enterprise Risk Management

• Market Share

• Experience & Quality of Investment Research Professionals

• Strategic Direction

• Cash Flow

• Market Growth

• Gross Margins

• Quality/Experience of Management Team

• Market Size


• Earnings

• Speed to Market (first to market)

• Market Share

Telecommunications


• Capital Expenditures

• Market Growth

• Customer Churn Rate

• Regulatory Environment

• Pricing Strategy

• Network Reach, Quality & Capability

• Earnings

• Revenue Metrics by Driver (e.g. Average Revenue per user)

• Significant Operating Costs by Category

• Sales & Marketing Strategy

• Cash Flow by Business Segment



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Pharmaceuticals Petroleum

• Market Growth & Potential by Therapeutic Area

• Product Focus Strategy

• Earnings

• R&D Pipeline

• Market Share by Therapeutic Area

• Regulatory Issues

• Product Innovation Strategy


• Effectiveness of Product Launch

• Reputation with Prescribers


• Market Growth & Potential by Geographic Area

• Market Growth by Geographic Market

• Partnering Strategy

• Cost/Revenue Ratios

• Quality of Selection of Development Targets

• Recruitment & Retention of Talented People

• Risk Profile of Product

• Efficiency of Manufacturing Facilities

• Profitability of Licensing Arrangements

• Economic Profit

• Value of Key Intellectual Assets

• Brand Awareness of Levels with Patients

• Supply, Demand and Prices for Petroleum Products by Region

• Cash Flow

• Unit Cost by Refinery

• Value of Proven & Probable Reserves

• Refinery Margins by Region



• Reserve Replacement Costs

• Refinery Utilization

• Refinery Acquisition Cost of Crude

• Earnings

• Supply, Demand & Prices for Crude Oil & Natural Gas


• Exploration Success Rate

• Return On Average Capital Employed or Similar Return Measure


• Petroleum Product Sales by Volume by Refinery

• Risk Management

• Quality of Workforce

• Hedging Strategy

• Market Share

• Operating Profit per Equivalent Measure by Geographic Location



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Chemicals Metals Mining

• Free Cash Flow


• Manufacturing Costs

• Earnings

• Market Growth


• Product Quality


• Capital Expenditure

• Utilization of Facilities

• Market Share

• Customer Loyalty

• Market Share

• Energy Prices & Supply

• Earnings

• Costs per Ton Delivered

• Market Growth

• Metals Prices



• Potential Supply Globally & Locally

• Utilization of Facilities

• Product Quality

• Free Cash Flow

• Age & Quality of Plant


• Value of Tangible Assets

• Implementation of New Processes & Technologies


• Regulatory Environment


• Cash Cost per Ounce/Kg/Ton


• Earnings

• Existing/Potential Environmental Liabilities

• Health & Safety Performance Statistics

• Metal Prices


• Acquisition Strategies

• Ounces/Kilograms/Tons Produced per Year


• Cost per Ounce/Kg/Ton

• Labor Relations

• Sustainable Development Strategy

• Environmental Policy/Risks

• Potential Supply/Production Globally & Locally



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• Free Cash Flow


• Market Growth

• Earnings

• Manufacturing Costs




• Market Share

• Product Quality

Diversified Manufacturing


• Free Cash-flow

• Sales Volume

• Quality of Strategy

• Growth of Strategy


• Market Growth

• Performance by Geographic Market

• Marketing Strategy

• Customer Loyalty & Advocacy

• Customer Service

• Weighted average cost of capital

• Employee Satisfaction & Advocacy

• Earnings

• Sales & Gross Margins by Product Category

• Market Share


• Marketing Costs

• Brand Portfolio Management Date

• Percent of New Products in Sales

• Employment, Environmental Policies

• Product Range Development

• Stock Levels in the Supply Chain

• Distribution Channel Complexity

Consumer Goods



9

• Market Growth

• Earnings

• Same Store Sales

• Gross Margins

• Free Cash-Flow

• Market Share


• Store Portfolio Changes (e.g., new stores)

• Weighted Average Cost of Capital

• Customer Satisfaction

• Expected Return on New Stores Refurbishment

Retail

• Financing Strategy

• Occupancy Rate

• Macro-Economic Factors (e.g., GDP growth, inflation, population & job growth, interest rates)

• Investment Strategy

• Return on Invested Capital

• Revenue from New Developments or Acquisitions

• Investment in New Acquisitions & Development Properties

• Earnings

• Market Rental Rate


• Free Cash Flow

Real Estate



• Sales per Square Foot

• Inventory Turns

• New Store Formats Tested & Performance Data

• Brand Value

• Product Availability



10

Automotive Entertainment Utilities

• Market Growth

• Market Share

• Free Cash Flow


• Customer Demographics


• Earnings


• New Business


• Cost reduction

• Investment/acquisition strategy

• Margin improvement

• Market growth

• Operating cash flow growth

• Operating profit growth

• Quality of management

• Regulatory environment and price controls

• Risk Management processes

• Strategic direction and focus - integrated vs. specialist player


• Earnings

• Free cash flow

• Market Share

• Strategic direction

• Product quality

• Customer satisfaction

• Market Growth

• Facility or capacity investment strategy

• Sales volume

• Performance by business segment

• ROIC


11

Everyone needs better information

• Management… to optimize allocation of capital and people

resources

• Boards of directors… to provide the level of oversight that

shareholders demand

• Investors… to more efficiently and effectively allocate and

price capital

• Regulators… to ensure that the capital markets are

functioning as efficiently and effectively as possible

The net result is a higher return on capital for society as a whole

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What makes information better?

• Information which is more relevant– Content matters – not the normal boiler plate

– Management’s perspective

– Different users have different needs

• Information which is not overly costly to produce or consume– Format matters

– Timing is important

– Focus on analysis not data gathering and validation

Both content and format of information enhance transparency

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What do you mean… content and format?

• Enhanced Business Reporting is about content– Provides information that is actually used for decision-making

– It is information that is not always disclosed

– Business community may want to develop standards for this type of

content (rather than waiting for territory regulatory actions)

• XBRL (eXtensible Business Reporting Language) is about

format– Current taxonomies are based on accounting standards

– Taxonomies for MD&A/OFR content are very high level

– Taxonomy extensions will provide more relevant information

14

What is Enhanced Business Reporting?

• Enhanced information for consumers– Internationally recognized, voluntary guidelines for industry-specific

value drivers and key performance indicators (KPIs)

– A framework for disclosure of non-financial information, e.g., opportunities, risks, strategies and plans and about the quality, sustainability and variability of cash flows and earnings

• Simplified report preparation– Stronger focus on quality of information, not quantity

– Prepare and disseminate information using efficient and effective business processes

15

A standardized format matters if information is to be more useful

• Management… to quickly populate a wide range of

analytical and reporting tools with relevant information

• Boards of directors… to access and analysis of

information buried deep within the enterprise

• Investors… to more efficiently and effectively access and

analyze information in business reports

• Regulators… to more effectively analyze information in

business reports

The net result is greater transparency of business information

16

The challenge

• CEOs and management must resolve to report externally

the same information that is used to manage the business

• Boards of directors must determine the optimal level of

transparency required to ensure that all stakeholders have

the information needed to make decisions

• Investors must demand and use qualitative, non-financial

information and key performance indicators

• Regulators must be willing to trade long-time requirements

for more relevant and useful information

17

The benefits are worth the effort

• Better Management

– Improving the ability of companies to benchmark performance against all

key performance indicators

• This level of benchmarking is impracticable in a paper-centric world

• Better Governance

– Directors can better fulfill their fiduciary responsibilities to shareholders,

e.g., more appropriate executive compensation through benchmarking

• Better Markets

– The over-emphasis of quarterly earnings will decline, as companies provide

richer information that enables to investors take a longer term view

– More efficient and cost-effective regulation

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One possible model for business reporting…

Tier ThreeCompany-Specific

Information

Tier TwoIndustry-

Based Standards

Tier OneGlobal Generally Accepted

Accounting Principles

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Performance

• Summary

• Supply chain

• Customers

• Acquisitions

• Innovation

• People

• Sensitivity

analysis

• Estimates

• Projections

Strategy

• Overview

• Strategic

priorities

• Operational

goals

• Risks and risk

management

• Opportunities

• Value drivers

The Market

• Competition

• Regulatory

• Macro-

economic

One possible framework enhanced business reporting…

Financial

• Financial

statements

• Segment

analysis

Source: Report of the Public Company Task Force to theAICPA Special Committee on Enhanced Business Reporting, June 2004

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What do we need to do?

• Work together along industry lines to create thoughtful proposals for greater transparency involving both simplification and enhancement

• Lead positive change, through a collaborative solution, by establishing an international Enhanced Business Reporting Consortium of diverse stakeholders to improve the quality and transparency of information used in decision-making

Market collaboration is the best solution for all participants

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Are there any alternatives to the EBR Consortium?

• Do nothing and…– Live with uncertainty in the markets about strategic intent and future

performance, but remember, uncertainty breeds market volatility

– Fail to demonstrate that users and providers of market capital are committed to hold themselves accountable for the quality of the information provided to the capital markets

– Fumble an opportunity to build upon the SEC's interest in a market-led effort

• One thing is certain…– Failure of the business community to develop and present

constructive proposals will result in future regulatory mandates

22

Companies are trying to explain why they did not make a target that they didn’t set in the first place

“Enhanced Business Reporting will help

companies move beyond the earnings game; placing

more emphasis on measures that give a better

picture of their value, their risks, and their

opportunities.”

Bob Herz

Chairman

Financial Accounting Standards Board

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What does the SEC think of the Enhanced Business Reporting Consortium?

“I am encouraged by the Enhanced Business Reporting Consortium's efforts to develop a voluntary, internationally recognized framework for presentation of industry-specific key performance indicators and disclosure of non-financial information about opportunities, risks and management's strategies and plans.

This effort represents the type of discussion and action that should be occurring in the marketplace as we all seek to continually improve the value of information for the sake of investors.”

Don NicolaisenChief Accountant

Securities and Exchange Commission

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Will you join us in providing leadership for change?

www.ebrconsortium.org

We are on the verge of a fundamental transformation of business reporting practices

XBRL & Enhanced Business Reporting: A Consortium Approach

Dr. Robert G. Eccles XBRL International

April 27, 2005

Boston, USA

Date post:	27-Dec-2015
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XBRL & Enhanced Business Reporting: A Consortium Approach Dr. Robert G. Eccles XBRL International...

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