Financial executives are responsible for managing a wide range of information regarding organizational strategic objectives, governance, risk and performance. It’s a complex task.

1. BENEFITS OF
Comprehensive
Integrated
Reporting
F
Financial executives are responsible grated reports as a means to seek
for managing a wide range of infor- new business opportunities, safe-
mation regarding organizational guard reputation, maximize compet-
strategic objectives, governance, risk itive advantage and mitigate opera-
and performance. It’s a complex task. tions risk.
Accessing, analyzing, managing This holistic supply chain
and communicating the critical approach provides transparent
information can be a costly, inflexi- alignment of company strategy with
ble and often manual, error-prone underlying business risks, key per-
effort requiring a wide range of formance indicators (KPIs), business
methods and documents. and risk developments, incentive
Due to internal barriers — most programs and other relevant internal
notably, the high cost of information and external information. (See the
access and reuse — many financial diagram on page 30.)
executives often focus more narrow-
ly on the information required for Benefits of Integrated
regulatory compliance. Unfortu- Reporting
nately, managing a business on Those familiar with the Indian para-
required regulatory compliance ble about blind men and an elephant
information may not be fully might agree it provides a useful par-
aligned with creating long-term cor- adigm for many current reporting
porate or personal value. processes. In the telling, each man’s
FINANCIAL REPORTING
Integrated reporting redefines the perspective of the elephant was
scope of information relevant to dependent on what part of the ele-
strategic corporate objectives and phant they happened to be touching.
provides a broader method of For example, its side felt like a wall,
accessing, analyzing, managing and its tusk a spear, its leg a tree trunk.
communicating strategic informa- Many financial executives cur-
tion both internally and externally. rently are faced with similarly nar-
Integrated reporting refers to the row perspectives based on distinct
integrated representation of a com- information silos or reports, reflect-
pany’s performance, in terms of both ing information that is oriented to its
financial and nonfinancial results. specific, largely compliance purpose
Companies are providing inte- such as financial, tax, management,
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© 2011 Financial Executives International | www.financialexecutives.org

2. READ FOR CPE CREDIT
governance or reporting is a more holistic
environmental. view of information relevant to
For many multinationals, the company and its value proposi-
information problems go well tion and strategy. As outlined in One
beyond access to disparate internal Report: Integrated Reporting for a Sus-
silos. They include inconsistent defi- tainable Strategy, by Robert G. Eccles
nitions of commonly used terms — and Michael P. Krzus, this approach
full-time equivalent, sick days, promotes a wider perspective of the
square foot, customer and others. Of information vital to a company’s By
course, financial executives are not long-term strategic objectives. As a
the only ones translating disparate result, financial executives have
standardizing
definitions into common terms. an opportunity to transform cor- disparate information sources,
Further, the ability to understand porate processes and enhance
and act on external market drivers long-term corporate value.
financial executives can eliminate
(competitive, economic, technologi- Information standardiza- the narrow perspectives of the
cal, etc.) is important to managing tion provides new informa-
business risks and opportunities. tion-processing capabilities
elephant and the blind man parable —
The common lack of a compre- that facilitate the more com- and “see” beyond merely
hensive approach to relevant, consis- prehensive integrated report-
tent, quality internal and external ing approach yielding benefits,
information silos or reports.
information obscures the holistic pic- including:
ture company financial executives >> Greater access to and transparen-
FINANCIAL REPORTING
seek to effectively manage the sus- cy of information from a wide range
tainable performance of their busi- of both internal and external infor- BY
ness and respective investments. mation sources, to improve analysis
DAVID PHILLIPS,
Integrated reporting moves in both the short and long term;
beyond today’s common “elephant >> More automated and streamlined LIV WATSON AND
view” of individual company finan- assembly and review processes,
MIKE WILLIS
cial attributes toward a more com- eliminating pervasive manual
prehensive assessment of company assembly and review systems;
value and performance and address- >> More transparency, reuse and
es a broad range of financial, value, collaboration on reporting and
social and strategic disclosures. analytical concepts used by both
The primary benefit of integrated internal and external analysts,
www.financialexecutives.org financial executive | march 2011 27
© 2011 Financial Executives International | www.financialexecutives.org

3. enhancing process agility; distributors to retailers to consumers into their individually unique analy-
>> More relevant information avail- to analysts. sis or integrated report. In this con-
able for management and stakehold- Unlike the physical grocery shop- text, integrated reporting is not only
er decision analysis of both the short ping processes, standardized busi- a reporting option but rather a new
and long term; and ness information is intangible and analytical capability that provides
>> Wider collaboration on reporting can be assembled using automated more timely, comprehensive and
standards and disclosure concepts processes. If grocery store products effective insights.
providing a broader dialogue on were intangible, consumers could
reporting standards as suggested by pull their shopping list of products Compliance Migration to
the International Integrated Report- directly into their carts without The Internet
ing Committee (IIRC) and the World going through the store. Further, the Regulators around the world are
Intellectual Capital Initiative (WICI). UPC exposes standardized product migrating their compliance process-
information that can be used for a es from paper to the Internet, which
An Elephant in the broad range of purposes including: commonly includes a transition
Grocery Store >> Standardized definitions for from unstructured, such as html,
Financial executives around the product comparisons and analysis; PDF and Word, to structured, stan-
world currently work in environ- >> Automated inventory manage- dardized formats (e.g. eXtensible
ments that often require significant ment impacting retail pricing, prod- Business Reporting Language, or
manual effort to access and repur- uct placement and procurement XBRL) that are designed to enhance
pose information from a wide range schedules; both production and consumption
of disparate internal enterprise >> Consumer check out; and processes. This Internet compliance
resource planning systems, consoli- >> Relationships between products transition facilitates enhancements
dation applications and spread- such that consumers can better under- in the reporting process for financial
sheets. Internal company reports stand which menu options might be executives, depending on their im-
reflect information from their system available or optimized on a particular plementation approach.
of origin and are often too narrow or day or within a specific store. Some executives perceive these
are manually assembled and thereby (This last example certainly regulatory changes as incremental
either too expensive or untimely to would have helped the blind men to requirements and thereby “bolt on”
be valuable for decision-making. more comprehensively understand the requirements to the end of their
Similar to the blind men in the the elephant parts — not just the one existing compliance processes, thus
analogy above, many financial exec- they were touching.) adding cost and time. Others regard
utives and their stakeholders can Likewise, the improved access these regulatory changes as oppor-
only cost-effectively access partial and reuse enabled by information tunities to “build in” standardiza-
information relevant to their analy- standardization can assist financial tion earlier in their processes. As a
sis. Limited access is often created executives in more effectively ac - result, they automate and streamline
by a range of proprietary informa- cessing, analyzing and reporting of their report assembly and review
tion silos, manual report assembly the comprehensive information processes, leading to cost and time
processes and disclosures reported strategically relevant to long-term improvements of 25 percent to 50
in content specific documents. company performance and value. percent, or more.
Further, common manual report Using standardized information In realizing the benefits of the
assembly processes create inherent processes, internal (and potentially built-in implementation approach,
opacity for those seeking to more external) consumers can “pull” rele- executives are afforded better access,
effectively manage information rele- vant information into their integrat- reuse and analysis of the compre-
vant to corporate strategies and ed report from across a wide range hensive information contained with-
internal and external compliance of disparate information sources. in a broad range of internal and
requirements. Financial executives realizing that external systems. This includes
The capability to more effectively they are consumers before they are information relevant to strategic
access, manage, analyze and report producers of information are the first objectives, governance, business
information is dramatically to benefit. Such a consumer-centric risks and related executive compen-
improved by supply chain informa- orientation places a premium on the sation, KPIs and corporate social
tion standardization. One standardi- comprehensive nature, context and and market oriented disclosures.
zation example — the application of relevance of information for both Similar to how the UPC standard-
the Universal Product Code (UPC) internal and external consumers. ized grocery store products
to grocery store products — signifi- Regulators, investors, analysts, streamlining inventory and sales
cantly enhanced transparency and creditors and companies are capable processes, the XBRL standard applied
process improvements for all supply of pulling public company disclo- to a broad range of company systems,
chain participants from vendors to sures they deem relevant directly reports and information enhances
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4. Reaping the Benefits of Integrated Reporting
Ask yourself...
access, reuse and analysis by financial
executives across a broad range of External Reporting Internal Reporting
reporting needs. Are key components of what Is too much time spent producing
makes my business successful the numbers, rather than gaining
Southwest Airlines: An Inte- missing from our reporting? real insight?
grated Reporting Case Study
Southwest Airlines Co., a major Dal- Would I invest in my company based Is reporting flexible enough to
las-based domestic airline, annually on what is presented externally? respond to change?
issues the Southwest Airlines One
Report. This integrated report was Is the market value of my company Do we have the market insight and
born of market discussions of indus- a fair reflection of the business? nonfinancial information needed to
try issues by the company’s reputa- stay ahead or are we too dependent
tion management team, and has on historical, financial information?
been developed and enhanced over
the last five years. “We needed to Does the quality of our reporting Do we have transparent perfo-
tell our story. It’s not a new story, we make us more vulnerable than mance measures with clear
just haven’t ever told it.” says Mar- peers to a hostile takeover bid? accountability for them?
ilee McInnis, Southwest’s communi-
cations manager. Does my company's reporting Do we have a complete, timely pic-
What was initiated in 2007 as sep- show clear alignment between ture of what’s going on in the busi-
arate reports on financial, manage- strategy, remuneration and KPIs? ness financially and operationally?
ment and environmental disclosures
was integrated into the One Report Today, every management team needs to be able to put themselves in the
in 2009.
shoes of a skeptical outsider, such as an investor, a new recruit, a customer
“Southwest is a company that
or a supplier. If done well, integrated reporting can secure capital and
focuses on a sustainable operation in
credit, help win the war for talent and build strong business relationships.
every aspect of our business. We are
a corporate citizen that maintains Source: PwC: Integratedreporting.com
customer service while still meeting
our fiduciary responsibility” says
Marcy Brand, the airlines director of community, among others — into its employee training oucomes and vol-
Investor Relations. “Our team has One Report, while also expanding unteerism.
made a commitment to communi- and refining the areas to meet stake- Southwest realized benefits from
cate our direction to the market and holder needs. integrated reporting through more
our One Report is a great medium To address some of the incremen- comprehensive and effective infor-
for that.” tal shareholder information needs, it mation processes.
Focusing on shareholders, em- became clear to company manage-
ployees and customers as the ment that they were not going to be Roadmap to Benefits
primary audience for Southwest’s able gather all of the relevant data or The roadmap to realizing benefits
integrated report, the company ini- implement the additional human from integrated reporting — while
tially targeted fuel and water use, and financial resources overnight. relatively straight forward — is not
issuing the Southwest Environmental Company senior management sup- necessarily a simple one. It requires a
Stewardship Report. port was critical in addressing the comprehensive approach, including
This separate report focused on resource requirements and process coordination across a wide range of
use, management, recycling of com- changes necessary to collect, analyze business segments, processes, infor-
pany resources and the improvements and manage the incremental infor- mation silos and internal groups.
made to company infrastructure, mation needed for the Southwest Understanding the corporate
such as planes, operational and main- integrated report. strategy drivers is an initial step; it’s
tenance processes and ground In some cases, due to the opacity easy to say but difficult to do. Man-
equipment that are designed to opti- of existing processes and systems, agement’s assessment should incor-
mize resource usage. temporary manual work-arounds porate core values and the resources
In 2009, following a continuous were required to collect and analyze required for delivery. These resources
improvement process and dialogue data from the underlying systems. would include critical company
with targeted stakeholders, the com- However, in planning for additional processes; customer, employee, ven-
pany integrated various disclosure data, management found that it dor and community attributes; sup-
areas — financial, nonfinancial, could incrementally manage and ply chain processes; and market,
environmental, suppliers, social and report on important areas, including competitor and other external forces.
www.financialexecutives.org financial executive | march 2011 29
© 2011 Financial Executives International | www.financialexecutives.org

5. Integrated Reporting Model hensive range of financial, value,
social, environmental and strategic
disclosures over long-term periods.
This approach aligns the information
important in managing sustainable
corporate value creation for all stake-
holders. As a result, the integrated
report provides a clearer more com-
plete picture of the company.
Standardized information em-
powers financial executives and oth-
er consumers to more effectively
access, manage, analyze and report
information they deem relevant.
This more transparent environment
empowers financial executives to
more effectively manage informa-
tion relevant to sustainable value
creation for all stakeholders.
Integrated reporting and infor-
mation standardization offers finan-
cial executives and their stakehold-
Source: PwC, ers the ability to obtain incremental
www.corporatereporting.com insights and process enhancements.
Realizing these benefits is an oppor-
Assessing relevant information motes more seamless exchanges tunity for financial executives to
from across these comprehensive across both internal and external sup- enhance their corporate and person-
strategic areas is one of the most dif- ply chain information stores, enabling al value propositions.
ficult tasks for managers. It requires consumers to pull information they
establishing common definitions deem relevant to their specific and D AVID P HILLIPS , CA (David.phillips@
for critical information and poten- particular needs. This source stan- uk.pwc.com), a partner with PwC LLP in
tially rethinking the association dardization offers an Internet-styled the U.K., is the firm’s International Corpo-
between strategy drivers and the environment of interoperable sys- rate Reporting lead; L IV A. WATSON
underlying processes and related tems, facilitating improved informa- (liv@accountability.org) is director of
performance metrics. tion access, analysis and reporting Research and Development for AccountA-
This often requires a better, more processes. These process enhance- bility in New York; and M IKE W ILLIS ,
holistic approach to company key ments can lead to: CPA (mike.willis@us.pwc.com), is a part-
performance indicators — those that >> Easy information access across all ner with PwC in the U.S. and Chairman
are integrated into the company’s relevant systems lowering informa- Emeritus of XBRL International.
long-term strategy for value creation tion reuse and systems maintenance
across all stakeholders. This assess- costs; To receive CPE for this article visit www.financial
executives.org/magazineCPE to complete your review,
ment moves beyond traditional >> Consumer-centric reporting and test and evaluation.
Instructional method: Self-Study
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Field of Study: Accounting
Traditional information manage- and analysis processes that improve Prerequisites/advance preparation: None
Advanced Prep: Reading article
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