By Doug Rand; Audit & Assurance Managing Director, Deloitte & Touche LLP.
Talking points
Financial reporting disclosures do more than just present financial results; they also serve as business bellwethers offering a glimpse into how macroeconomic trends, geopolitical shifts, global trade dynamics, and technological advances may affect a company and its investors.
With that in mind, Deloitte decided to take a closer look at Fortune 500 company annual report disclosures from the 2024 financial reporting cycle. The goal: to see how companies approached the current global business environment and regulatory landscape in their financial disclosures. The insights ahead shed light on key disclosure requirements, business trends and risks, and how companies are navigating and discussing them.
Let’s start with two topics that moved further to the forefront in 2024: AI and global trade. Both emerging issues led to a notable rise in the percentage of companies issuing disclosures during the year.
As AI technologies become more common in business, references to AI, including Generative AI (GenAI), are increasing in registrant risk factors and business sections. In these disclosures, companies focused on how they’ve integrated or plan to integrate AI and GenAI into their operations. They also detailed associated risks like data privacy and labor market effects. Discussions often cover:
The SEC staff warns against “AI washing,” or making unfounded AI claims, stressing that companies should substantiate any AI disclosures. They also encourage firms with significant AI risks to disclose their AI risk management and governance policies, promoting transparency and accountability in communicating AI strategies and managing risks.
Tariff uncertainty affected various industries and markets, leading to a significant increase in disclosures on the topic. Companies noted in their risk factors section that tariffs could affect their costs, profitability, and consumer demand, possibly requiring strategic adjustments to manage global supply chain issues. Many companies also mentioned that tariffs, along with retaliatory measures, could increase volatility in operating costs and sales margins. We anticipate that disclosures on this topic will evolve throughout 2025 as tariffs continue to impact the macroeconomic landscape.
"The macroeconomic landscape is changing quickly due to new tariffs impacting various industries and markets. Companies have noted in their risk factors section that these tariffs could affect their costs, profitability, and consumer demand."
- Doug Rand
Segment disclosures changed substantially in 2024 with the adoption of ASU 2023-07, which requires public entities to disclose significant segment expenses in the segment footnote. Footnote disclosures include the expense categories and amounts regularly provided to the chief operating decision maker (CODM), as well as segment measures of profit and loss.
Here are a few things to know about segment disclosures:
These requirements aim to enhance transparency and provide a clearer understanding of how segment performance is evaluated and used by management.
The SEC’s final rule on cybersecurity disclosures, which took effect in December 2023, also figured prominently in our 2024 analysis. Now in its second year, the rule requires public companies to disclose material information about their cybersecurity risk management, strategy, and governance in their quarterly and annual reports. In 2024, more companies discussed certain common elements of their cybersecurity posture than the previous year, as shown in the following chart:
Our analysis noted a modest increase in Pillar Two disclosures in 2024. Most registrants mentioned the uncertainty in timing, scope, and impact of the United States’ adoption of the framework. On the sustainability front, despite the rapidly evolving global policy landscape, most registrants continued to disclose sustainability matters in their annual reports under existing disclosure requirements, primarily as part of risk factors. For more on Pillar Two, sustainability, and other financial reporting insights, download Deloitte’s “Financial Reporting Spotlight.”
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