PwC Value Report Charts New Measurement Trends
Major global corporations are leaving behind traditional financial reporting disciplines to implement more transparent and informative performance indicators, according to PricewaterhouseCoopers.
Launching the latest edition of the firm's ValueReporting Forecast, PwC partner David Phillips commented: "Forward thinking companies are beginning to see information as delivering competitive advantage. Beyond financial performance, companies are communicating information on their marketplace, their strategy and the intangibles and other non-financial data that are lead indicators of the future performance of the business. This information simply does not exist in traditional financial statements."
ValueReporting - a trademarked term which boasts its own Web site - has become a crusade for the Big Five firm. The concept originated in a book by three PwC partners, including Mary Keegan, who now chairs the UK Accounting Standards Board. The 2001 ValueReporting Forecast, available from the firm for $150, explains the concept and details how international organizations have put the ideas into practice in their annual reports and shareholder communications.
According to Mr. Phillips, the underlying philosophy of ValueReporting is transparency - the theory being that investors cannot value what they cannot see. PwC pointed out that the top five per cent of companies listed on any quoted market typically account for 60-85% of the market's entire value. Companies' visibility - and their potential share of investment - can be enhanced by improving their corporate reporting, the firm said.
ValueReporting separates corporate reporting into four categories covering both internal and external issues:
- Market overview - the need for management to explain their company's positioning and the dynamics of the industry in which it operates
- Value strategy - the organization's goals and objectives, and how it is structured and governed to attain them
- Managing for value - financial and economic performance, including risk management
- Value platform - inputs such as brands, customer loyalty, supply chain, people and corporate reputation that underpin future value creation.
As well as explaining the philosophy, the ValueReporting Forecast includes 61 examples of best practice. In the managing value section, for example, the Bank of Montreal won plaudits for identifying seven key performance indicators - including expense to revenue ratios and provision for credit losses - and other financial services benchmarks in its annual report. The bank also provided information on how it compared to peer organizations in Canada and North America.
"Volatility in stocks is often driven by lack of information and, while this will never go away entirely, if critical management information is missing, this gap will become readily apparent to investors. It is in the best interests of companies to keep their shareholders and other stakeholders on board longer-term by making this information more available," said Mr. Phillips.