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The Winds of Change for Corporate Reporting – Companies Need Support

Financial Reporting Brief: October 2022

The winds of change in corporate reporting are blowing strongly. The huge momentum towards sustainability reporting is seen by many as the most pervasive reporting change for companies for many decades.

The challenges of implementing substantial new financial reporting standards, for example on financial instruments, revenue and leasing have been grappled with in recent years – the sustainability standards will bring companies in a new direction. It should bring to an end the multiplicity of sustainability frameworks that have developed in recent years with the consequence of fragmented reporting. Connectivity of financial and sustainability reporting to provide the framework for comprehensive reporting is the ultimate goal.

The momentum is worldwide and, under the auspices of the IFRS Foundation, the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB) will work together with unified purpose towards achieving the ultimate goal. The ISSB is charged with responsibility for developing a global baseline for sustainability standards and has swung quickly into action with draft standards already published in key areas. A key element of their efforts will be to achieve alignment and consistency with regional standard-setters.


The European Landscape
In recent months we have seen significant developments in Europe. A suite of European Sustainability Reporting Standards (ESRS) was published in draft in the Spring and completed an extensive consultation process in August. The European Corporate Sustainability Reporting Directive (CSRD), which provides the platform for ESRS, has reached near-final stage having received ‘go ahead’ from the European Authorities. Member States will be required to introduce the CSRD into national legislation within eighteen months after its final publication.

It is expected that all of the above will be published in final form in the next few months. While the implementation of the standards is on a phased basis, from 2024 to 2028, those entities which are currently subject to the European non-Financial Reporting Directive have little more than a year before the first period in which the standards will be applicable in 2024. The CSRD extends the scope from 11,000 entities under the current non-Financial Reporting Directive to over 45,000 with a substantial proportion of the 34,000 balance being required to implement the standards in 2025. From 1 January 2028 CSRD will apply to all third country undertakings generating a net turnover of more than €150 million in the EU and which have at least one large EU subsidiary or a EU branch generating a net turnover of more than €40 million.

Clear and pragmatic sustainability reporting standards will be paramount to achieving the EU Green Deal’s ambitions and help turn Europe into the first climate neutral continent by 2050.

In order for investors and sustainability-minded stakeholders to assess a company’s future performance, they need a clear and comprehensive picture of its ability to create sustainable value over time—not just a snapshot of its finances.


Accountancy Europe Observations
Accountancy Europe is supportive of ESRS but has expressed some concern over the speed of journey, given the large volume of standards and related change that is being introduced. AE urges EFRAG to adopt a smart phasing-in approach, starting with the critical disclosure requirements that capture transformations of business models, moving forward towards expanding requirements to value chain disclosures.

AE cautions that EFRAG should bear in mind that ‘less is more’ in helping businesses to adopt the standards, believing that it will be faster and more effective than rushing the development of an exhaustive compliance machinery.

While there are concerns with the approach to implementation, there is little doubt that the call is loud for improved reporting and will grow louder if there are any delays beyond the next few months.

Time could be well spent now in addressing what can be done and what resources are available to support and assist with planning for implementation. A brief introduction to some of these follows.


Integrated Thinking
It is clear that the call for comprehensive reporting emphasises the need for companies to adopt a unified approach to reporting to stakeholders, in their annual report and elsewhere. The 21st century market demands a corporate infrastructure to develop, manage and communicate strategy, governance, performance and prospects and the overall business plans to create long-term value and drive improved performance.

Integrated thinking leads to integrated decision-making and actions that consider the creation, preservation or erosion of value over the short, medium and long term. It takes into account the connectivity and interdependencies between the range of factors that affect an organization’s ability to create value over time.

The more that integrated thinking is embedded into an organization’s activities, the more naturally connectivity of information will flow into management reporting, analysis and decision-making. It also leads to better integration of the information systems that support internal and external reporting and communication, including preparation of the annual report.

The Value Reporting Foundation (VRF) completed its consolidation into the IFRS Foundation earlier this year. The IFRS Foundation and the Chairs of the IASB and the ISSB encourage the continued use of the Integrated Thinking Principles and engagement by stakeholders in developing them as practical guidance that will enhance the quality of corporate governance and reporting.

The recently published VRF guidance ‘Transition to Integrated Thinking’ is a valuable source of information on Integrated Thinking Principles which will help companies begin, or continue on, a journey towards embedding integrated thinking.


Living Your Purpose
The Deloitte publication ‘Living your Purpose’ begins with the principle that ‘Every Journey Needs A Map’. To that end, the publication sets out a roadmap that highlights both integrated thinking (embedding considerations of planet, people, purpose and prosperity into a company’s governance, strategy, risk management, and metrics and targets) and integrated reporting (a journey to authentic reporting on the 4Ps). The roadmap reflects that the reporting journey is an iterative process, requiring a multi-year approach, regular evaluation, and modifications to enhance both thinking and reporting. This journey may need to be accelerated somewhat given the European timetable.

The roadmap outlines the various steps along the way, with proposed actions and useful considerations for each step. Perhaps of particular interest given the imminence of sustainability reporting is the area of assessing readiness for mandatory reporting where it proposes:


  • Enhance the process for monitoring developments in standards as they are formalized, issued, and mandated by regulators;
  • Evaluate what you already report compared to new requirements, including impact on KPIs and governance arrangements;
  • Evaluate methodologies currently used for metrics and targets compared to new requirements;
  • Adjust and formalize systems and controls to enhance data capture; •
  • Review how disclosure and reporting need to be adjusted, especially how the location of required disclosures compares to current reporting; and
  • Review how to obtain the appropriate level of assurance to enhance confidence in the reported information.

Useful Considerations

  • Is your process sufficiently robust to deliver information that meets expected attributes of mandatory reporting (faithful representation, relevance, materiality, comparability, verifiability, timeliness, and understandability)?
  • Do you have appropriate connectivity in your approach to audit and any assurance provided?


ESG Data Production
One of the valuable sources of practical guidance on how to commence, or continue, planning towards implementation of the sustainability standards is the recent publication by the Financial Reporting Council Lab – ‘Improving ESG Data Production’.

The systems to produce, distribute and consume ESG data are significantly less mature than those for financial information. In this context, the FRC Lab launched a project about the production, distribution and consumption of ESG data, with this being the first stage.

The FRC Lab emphasises that while use of ESG data is valuable to external stakeholders, high quality data is of significant benefit for companies’ decision-making to ensure they remain sustainable within a changing landscape.

Three elements of ESG data production are identified which are used to explore the current landscape, challenges and positive actions to address them.

The three elements are:

  • Motivation – What motivates the company to collect ESG data and how does it identify what is needed, including business and strategy needs, investor and stakeholder requests and regulatory requirements?
  • Method – How is ESG data collected?
  • Meaning – How is the data used within the company and how does it impact decision-making?

The publication provides a recommended step-by-step approach to ESG data production to meet these needs.

The FRC Lab research has already found many stories of how the collection and embedding of ESG data is driving more integrated thinking and change within companies, both at a strategic and operational level.

Bringing to an end the clutter and confusion caused by the multiple sustainability standards currently published is the work being done by the ISSB. Working together with the IASB, large stepping-stones are being put in place towards a global, comprehensive corporate reporting system.

Companies should follow the roadmap on a journey to improved reporting. Nothing less will be expected by investors and other stakeholders.

Deloitte publications that may be of value in this area include:
EFRAG consultation on ESRS


Resources and Publications

Closing Out 2021

Welcome to our one-stop guide covering the issues relevant to the preparation of December 2021 annual reports.


Governance in focus — On the board agenda 2022

Our annual review of board topics will stimulate your thinking and help prepare you for the year ahead. Across the board, expectations of business are rising and it is this demanding environment which shapes the articles in this year’s publication.


Annual Report Insights 2021 - Surveying FTSE Reporting

Surveying FTSE reporting. Our yearly survey scours the annual reports of 100 listed UK companies and provides insight and inspiration ahead of the next reporting season.


IFRS Model Financial Statements 2021

The Model for 2021 illustrates the presentation and disclosure requirements of IFRS Standards and also contains ‘best practice’ examples.


IFRS in your pocket 2021

IFRS in your pocket is a comprehensive summary of the current IFRS Standards and Interpretations along with details of the projects on the standard-setting agenda of the International Accounting Standards Board.


Understanding the differences between U.S. GAAP and IFRS Standards

A comprehensive 380-page publication focusing on some of the most common and significant differences that may affect financial statements when converting from U.S. GAAP to IFRS Standards and vice versa. Updated to 2022.


IFRS Foundation Trustees' sustainability reporting initiative

Summary of continuing developments.


Climate & Sustainability

Today’s climate crisis urges us to reinvent our economy. Business needs to change to meet higher expectations of sustainability and Deloitte is well-equipped to guide organisations through this change. Together we can rewrite the playbook on authentic business responsibility.


Operations Transformation

Operations reimagined and reconfigured - how do we embrace a future of change without losing focus on our purpose? We help you think holistically about the transformation process, so you're reskilling your people, redeploying your assets, and refreshing your technology stack.


Brexit Resources

Deloitte resources on financial reporting implications of Brexit, including links to news and publications.


New IAS Plus resource page

Highlights some of the key accounting and disclosure issues to be considered by entities that may arise as a result of COVID-19 in preparing financial statements.


Enhanced IFRS e-learning website

Our IFRS e-learning platform allows external users to complete over 40 of Deloitte’s IFRS e-learnings free of charge with 6 million+ uses in recent years.

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