Enhanced Business Reporting (EBR) is focused on improving business reporting by developing an internationally recognized, voluntary framework for presentation and disclosure of value drivers, non-financial performance measures, and qualitative information.

EBR improves the quality and transparency of information companies provide so investors and other key stakeholders can make better informed decisions. With EBR, the focus is on shifting the model from one that is based primarily on historical or lagging financial information to a model that incorporates relevant value drivers, financial and non-financial performance measures, and qualitative information around management’s strategy, plans, opportunities, and risks. EBR delivers a broader view of current performance and greater understanding of an entity’s future. Coupled with enabling technologies like XBRL, EBR will provide users with the breadth of information they require at the speed they need to be successful in today’s economy.

• The Need for Enhanced Business Reporting
• The Special Committee on Enhanced Business Reporting
• The Enhanced Business Reporting Consortium
• The Benefits of Enhanced Business Reporting
  

The Need for Enhanced Business Reporting

Executives and investors alike recognize the importance of non-financial measures of business performance. Information about such qualitative aspects of operations as strategic planning, employee turnover, and customer loyalty are not typically reported to corporate boards and investors, yet thousands of successful executives run their businesses using them.  With U.S. mutual funds ownership exceeding 90 million individuals, there is a compelling argument that people are the “institution” driving the capital markets… people who are now, or will become, dependent on these assets to sustain their quality of life during retirement. Because of this dependency, the participants in the business reporting supply chain should reach the conclusion that high quality and transparent information is clearly the best outcome for the public interest.

The Sarbanes-Oxley Act, the creation of the Public Company Accounting Oversight Board (PCAOB), a potential use of principles-based accounting standards, and the internationalization of these standards, require businesses to be more open and accountable to their investors and the public. There is a growing demand for companies to provide key performance indicators and information about opportunities, risks, and management’s strategies and plans.

The Special Committee on Enhanced Business Reporting

In January 2003, the AICPA established the Special Committee on Enhanced Business Reporting. In January 2005, the Committee completed its two-year term upon achieving its mission—“to establish a consortium of investors, creditors, regulators, management, and other stakeholders to improve the quality and transparency of information used for decision-making.”

The Enhanced Business Reporting Consortium (EBRC)

The EBRC works towards consensus on an internationally recognized framework of voluntary, international guidelines for EBR that supports delivery of information with improved relevance and comparability for decision making. The Consortium’s mission is to improve the quality, integrity, and transparency of information used for decision-making in a cost-effective and time-efficient manner. Members are developing a voluntary, global disclosure framework designed to be the “gold standard” in business reporting. When fully developed, this framework will provide structure for the presentation of non-financial components of business reports—including key performance indicators—and facilitate greater integration of financial and non-financial components on an industry-by-industry basis. EBR will make it easier for stakeholders to understand the opportunities and risks a company faces and better reflect the complexities of modern business and the quality and variability of earnings and cash flows. The Charter members of the EBRC include Grant Thornton, Microsoft Corporation, and PricewaterhouseCoopers.

The framework also enables a more robust application of XBRL in the sense that it can serve as the basis for meaningful taxonomies for the non-financial components of the reporting package such as, the narrative portions of the 10K including MD&A, proxy statements, compensation disclosure & analysis, etc. This framework will have the following components developed on an industry basis:

• Generally accepted definitions, measurements, and voluntary disclosure guidelines for industry-specific, process-oriented value drivers, and key performance indicators;
• Generally accepted, voluntary disclosure guidelines for information about opportunities, risks, strategies and plans, and about the quality, sustainability, and variability of cash flows and earnings.

The Framework can be viewed at http://www.ebr360.com/ContentPage.aspx?ContentPageId=107 .

The Enhanced Business Reporting Consortium will also work toward a stronger focus on the quality, not quantity, of reported information by:

• identifying information that is either of marginal use to the investor and creditor communities or redundant;
• using technology and best practices to streamline the business reporting process;
• developing thoughtful proposals to eliminate needless complexity and costly duplication; the Reporting Simplification Task Force was established to conduct research to identify opportunities for simplification of current reporting requirements for public companies within the context of enhanced business reporting. It is currently working on a research project to identify the relative value of existing financial disclosures in the financial statements and notes in order to identify key areas where simplification may be advisable.

The Private Company Task Force of the AICPA developed a version of the EBR Framework that is scaled to the needs of non-regulators and privately-held businesses.

The Framework for private companies can be viewed at http://www.ebr360.com/ContentPage.aspx?ContentPageId=102.

The Benefits of Enhanced Business Reporting

Widespread implementation of enhanced business reporting will contribute to ongoing efforts to rebuild investor confidence and protect capital markets through enhanced transparency. Academic research and papers published by standards-setting organizations have identified benefits attributed to disclosure of key performance indicators and high-earnings quality. Several of the benefits are outlined below.

Investors and creditors benefit from:

• Reduced likelihood that they will misallocate their capital;
• Increased understanding of an entity’s operations.

• “…discounts of 80-160 basis points in their average cost of debt and 150-300 basis points in their average cost of equity relative to firms with the poorest earnings quality.” (The Market Pricing of Earnings Quality, October 2002, an unpublished research paper);
• Enhanced credibility and clearer communication with stakeholders.

• Restoration of trust and confidence in business reporting;
• More efficient and effective regulatory processes.

• Strengthened global competitiveness due to stability in the capital markets;
• Increased foreign investment.