Michael Ho Wan Kau (PwC Partner): “Our strategy is to support Integrated Reporting”

The media buzz surrounding the 14th edition of the PwC Corporate Reporting Awards reflects a deeper global movement for a reform in actual corporate reporting standards. Advocates of reform demand more focus on transparency. To PwC partner Michael Ho Wan Kau, Integrated Reporting could spell the solution.

BUSINESSMAG.One of the objects of the Corporate Reporting Awards organised annually by PwC is to encourage the listed firms to improve their financial reports. What has been the evolution of the reporting trend in Mauritius so far and to what extent has PwC contributed thereto?

PwC started the Corporate Reporting Awards some 15 years ago. The event was known as the Best Published Accounts and the title reflected what corporate reporting was at the time i.e. it was limited to financial statements and a directors’ report. Some had a Chairman’s report and the sugar groups gave some statistics on cane harvest and sugar production. The contents of annual reports have mainly been influenced by legislations, the Stock Exchange Act in the late 80s, the Companies Act in 2001 with the need to prepare financial statements in accordance with International Financial Reporting Standards and the Financial Reporting Act in 2004 which resulted in the publication of the Code for Corporate Governance. Over the years, we have seen annual reports growing in volume. Take The MCB, which has been the recipient of many of PwC awards, as example, in 2001 its annual report had 70 pages whereas its latest one is 232 pages long. The quality of reporting has also improved. In general, management are very good at telling us about facts and events that have affected their operations during the year.

I would like to believe that PwC has played a more than insignificant role in influencing the content and quality of corporate reporting. I recall messages from our past events included the right of shareholders to more relevant information, the need for transparency to drive value and the importance of management to “Tell it as it is”. These messages are what we hear in international forums on corporate reporting today.

BUSINESSMAG.After the global economic crisis, there seems to be a generalised consensus in the financial realm that there is a need for change as far as corporate reporting is concerned. But they do not concur on how far-reaching the reforms had to be or what should be altered. What according to you should be the major lines of reform?

The key issue is to determine what must be reported in annual reports. To answer this, we must address who are the users of annual reports. Is it to current shareholders? Potential investors? Or to other interested parties such as bankers, financers, suppliers, employees, regulators or to the general public? Different stakeholders will have different reporting needs and we cannot satisfy all in one single report.

While companies have been providing more and more information, are all these information relevant and reliable? Are they clear? We need to go back to basics. If the purpose of the annual report is to the shareholders, then we must provide them with the information they need to decide if they should continue to invest in the company or to disinvest if they do not like the direction the company is going.

BUSINESSMAG.There is growing recognition that the range of issues and opportunities affecting long-term business value is much broader than can be reflected in a set of current year financial measures. Currently, do the annual reports of the companies listed at the SEM and DEM reflect the said issues?

Some companies are starting to talk about their medium to long-term business strategies. It is interesting to note that many CEOs of listed entities do not mention the word “strategy” or variants of that word a single time in their reports. Management are definitely less at ease when it comes to providing forward-looking comments. There is also too much focus on financial measures and not enough on non-financial key performance indicators.

BUSINESSMAG.Ultimately, good reporting is about meeting investors’ needs. How can corporate reporting be improved, according to you, if they are to support investors’ capital allocation decisions effectively?

Management must inform how the entity is creating and sustaining value. There must be a clear linkage between their objectives, the strategies adopted to achieve these objectives, the actions taken to mitigate the impact of risks they are facing, the success of their strategies to date and how directors and management are rewarded for achieving success. Management must put their actions into context as investors want to know if the success is down to the quality of management or to luck! Investors are looking for evidence of management quality and credibility in their reporting.

BUSINESSMAG.The world of corporate reporting needs to evolve. The gap between investors’ needs for a more complete picture of value and the information currently being reported is not sustainable. Many advocate for integrated reporting as a panacea for this. Is integrated reporting the solution according to you?

Integrated Reporting (IR) brings together the best of existing reporting practices under a framework that will also support future development in corporate reporting. It attempts to bridge the information gap that investors have been requesting for some time now. It will make corporate reporting more coherent by joining up the different elements of an annual report such as the financial statements, management commentary, governance and remuneration and sustainability under a storyline. Integrated Reporting <IR> is the way forward.

BUSINESSMAG.What is PwC’s short to medium term strategy in enhancing corporate reporting on the international front?

Our strategy is to support IFRS to become the single financial reporting framework applied internationally and Integrated Reporting (IR). PwC has been at the forefront of corporate reporting development both locally and internationally. PwC is part of Report Leadership, a multi-stakeholder group that aims to challenge established thinking on corporate reporting. Its proposals can be viewed on www.reportleadership.com. PwC have joined the IIRC Pilot Programme Business Network to provide the International Integrated Reporting Council feedback on key building blocks in the Integrated Reporting Framework and to build momentum towards implementation of IR. The UK firm holds the Building Public Trust Awards, an event similar to the Corporate Reporting Awards. PwC have built up a website (www.corporatereporting.pwc.com) with a repository of good international practices in Corporate Reporting. We are hoping that good practices from Mauritius will find their way into this website soon.

PwC partners with IIRC to host Pilot Programme Conference

PwC has won the contract to partner with the International Integrated Reporting Council (IIRC) and host the IIRC Pilot Programme Conference in Frankfurt on the 18th and 19th June this year.

The IIRC has been developing an ‘Integrated Reporting Framework’ to respond to criticism that the information companies report to the markets does not meet the needs of stakeholders, puts unnecessary risk into the capital markets system and undermines trust in business. The IIRC is driving significant change. Influential people and organisations are involved, including: the World Economic Forum, the IASB, the International Organization of Securities Commissions, the World Bank, Transparency International, the International Federation of Accountants, the Global Reporting Initiative, the Big 4 Global CEOs, investor groups and over 85 companies from around the world. These companies, including some of the world’s largest multinationals, have signed up to the IIRC’s Pilot Programme to help test and develop the IR framework, version 1.0 of which is due to be released in December 2013. This gives us unparalleled access to many of the world’s largest companies and the other influential stakeholders involved with the IIRC. It is a great opportunity for PwC to demonstrate leadership in reporting across the network.

PwC will be bringing together a team of specialists from its Integrated Reporting Network to help the IIRC develop the conference sessions to meet participant needs. PwC is also providing additional insight to pilot companies by preparing benchmarking and top-level recommendations of their reporting and by sharing practical insights on its global website on Corporate Reporting.