Better integrated reporting can enhance investment professionals’ analysis: PwC report

80% of investment professionals agree that the quality of a company’s reporting affects their perception of management quality. Nearly two-thirds of investment professionals (63%) say that the quality of a company’s reporting could have a direct financial effect on its cost of capital.

These are just some of the findings disclosed in a PwC global survey of 85 investment professionals on what constitutes useful corporate reporting and where they see opportunities for management teams to improve on today’s reporting.

Zubair Wadee, PwC Assurance Partner, says: “Understanding the needs of investors and analysts is crucial if management teams are to maximise the effectiveness of their formal reporting to the capital markets. However, the majority of current corporate reporting frameworks are not set up to support the communication of wide-ranging information. They tend to remain focused on historic financial performance, with information on other topics usually presented in silos.”

“Initiatives are underway to change this, such as the International Integrated Reporting<IR>Framework developed by the International Integrated Reporting Council (IIRC). Companies applying the framework may benefit from more integrated decision-making within their organisation, as well as more insightful reports to the market,” adds Wadee.

Investment professionals taking part in the survey were asked to consider all elements of formal company reporting, including integrated reports, investor presentations, websites and press releases – any information provided by the company to the market. Their responses highlight the information they find useful, the importance of an integrated approach, and ways in which current reporting can be improved. “Management teams that get their reporting right can enhance their own reputation and their company’s capital-and debt-raising opportunities,” says Wadee.

Companies are placing corporate reporting high on the boardroom agenda in the wake of reputational concerns and long-term-investment decisions. Investment professionals say that the quality of a company’s formal reporting can have both a direct and an indirect effect on their investment decisions.

Investment professionals have a challenging job – they are required to gain a comprehensive understanding of how a company’s business model operates, how management strategies are being implemented, and how that translates into performance and value creation. 82% of professionals surveyed feel more confident in their own analysis when companies present information clearly and concisely.

Companies are required to report on business models under many reporting regulations. Integrated reporting regulatory requirements have been introduced in countries such as South Africa and Brazil. According to the survey, investment professionals consider a company’s overall explanation of its business model to be important for analysis purposes.

Wadee says: “This information is highly valued by investment professionals, but it is not necessarily communicated clearly by companies. The research identifies some substantial ‘effectiveness gaps’ – particularly in relation to how companies create value and generate cash, their dependencies on key relationships and resources, and how well they articulate their overall business model.”

The integrated report was cited by investment professionals as the most valuable source document, not only for financial information but also in relation to governance matters and environmental, social and human capital topics. It is also important for explaining strategy, risks and opportunities. The reliability and comprehensiveness of the annual report are its key strengths.

“Given the areas where investment professionals see room for improved reporting – particularly around key risks and dependencies on key resources and relationships – better integrated reporting could provide the solution.

“Developing reports that are more integrated could potentially better meet the needs of investment professionals, while also encouraging more cohesive decision-making within companies to support longer-term value creation,” concludes Wadee.