Symposium Times

By Alan Quale, Gartner

Enterprises and CIOs should look at new financial reporting regulations as an opportunity to gain competitive advantage rather than as costly obstacles, said Michael Smith, Gartner Research vice president, during his this morning’s session “How 21st Century Financial Reporting Requirements Will Impact Enterprises and CIOs,” held in the Swan.

“Regulatory authorities around the world have been collaborating for several years to enhance business and financial reporting through the use of IT,” he said Thursday in an address at Gartner Symposium.

“Mandates for publicly traded companies to disclose financial information in an interactive data format will ramp up significantly during the next few years.”
He said companies need to develop a long-term strategy not only to comply with these regulations, but also to exploit them for competitive advantage. Key issues in new financial reporting requirements include:
• What new reporting requirements are being mandated globally?
• How will these regulations affect “the market” for financial reporting?
• What opportunities does this provide corporations and what role should the CIO play in exploiting them?
“Confusing the 21st Century Disclosure Initiative with SOX would be a mistake,” Mr. Smith said. He said Sarbanes Oxley (SOX) was a reaction to accounting irregularities and focused on stronger penalties for not complying with existing accounting rules. It also imposed additional regulations for internal controls.
Mr. Smith said these new rules were imposed quickly, with little participation of industry groups and resulted in significant internal costs to reporting companies. Similar rules were promulgated by regulatory authorities around the world.
“Needless to say, most corporations are still reeling from the effects of SOX and SOX-like regulations that were imposed in the 2004-2006 time period,” Mr. Smith said.
“The 21st Century Disclosure Initiative is quite different,” he said. “It has taken an evolutionary path with participation from corporations and regulatory authorities around the world. There has been a voluntary program in place since 2004. This program enabled corporations to experiment with ideas and provide feedback over a three-year period.”
The transformation from document-based to interactive data-based disclosure, under the 21st Century Disclosure Initiative, is a disruptive innovation in the marketplace for financial information, according to Mr. Smith.
“The changes for companies are significant, but consider for a moment what this means for auditing, financial publishers of annual reports, and data aggregators,” he said. “Auditors will be able to use interactive data to statistically test for accounting irregularities, hard-copy annual reports may become obsolete, and data aggregators will be disintermediated.”
Through improved transparency, the 21st Century Disclosure Initiative will make it easier for investors to sort through and analyze a company’s information.
“Be prepared for the 21st Century Disclosure Initiative whether you are a proponent or an opponent of transparency,” Mr. Smith recommended. “The worst situation is to be caught off-guard.
He said to develop a phased-in strategy to respond to these new and emerging requirements. Business intelligence and performance management professionals should help senior management understand and assess these market changes and develop a strategy to respond.

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