Executives Admit Improvements Needed Despite SOX Advances

January 26, 2006 (PLANSPONSOR.com) - Sarbanes-Oxley has helped companies improve their financial reporting, but senior corporate executives say things in that area can still get better, a new survey found.

A PricewaterhouseCoopers news release said its new poll identified several areas where executives said they can improve including:

  • the fit of information to stakeholder needs, through increased use of contextual information such as key performance indicators, strategy, risks, markets, products and people issues
  • reducing complexity and improving clarity
  • the extent to which reporting conveys the information used for corporate decisionmaking.

Only a bare majority said their financial reporting models do a good job of providing information valuable for managing the business, the survey found.

Senior executives see much room for improvement in reporting to their company’s five key stakeholder groups – customers, employees, shareholders, suppliers, and analysts – with many saying the information needs of some groups are being under- or over-delivered relative to their strategic importance.

Although many large companies have taken steps over the past two years to improve transparency, shareholders and analysts are again seen as benefiting most from that transparency, relative to their perceived importance.

Analysts see things differently. Preliminary results of a separate analyst survey currently being conducted by PricewaterhouseCoopers show that the analyst community remains greatly dissatisfied with the level of useful information delivered by companies’ annual and quarterly financial reports. Areas frequently cited as lacking include the level of granularity and transparency of cost structures and segmental analysis, as well as the need for greater consistency of key performance indicators within industry groups.

Making Data More Clear

When senior executives were asked to rate the complexity of their company’s financial reporting model on a 10-point scale, where 10 means “clear to all users” and one means “clear only to accounting technical experts,” the average rating was a 6.1.

“What senior executives are telling us is that corporate reporting is still primarily slanted toward meeting the information needs of shareholders and analysts, and requires improvements in transparency to meet the needs of other stakeholder groups-with greater attention to customers, employees, and suppliers,” said Vin Colman, PricewaterhouseCoopers’ Risk and Quality Leader, in the news release “Equally important, these professionals are also clearly interested in financial reporting that has greater clarity or simplification.”

Reporting could also better mirror information used for managing the business. Only a bare majority (53%) said their company’s financial reporting model performs “extremely” or “very well” in providing valuable management information used for running the firm. Nearly four in ten (39%) say their model performs only “somewhat well” or “not very well” in this regard.

PricewaterhouseCoopers’ Management Barometer is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc. Additional information is available from Pete Collins, survey director and publisher, at 646-471-4496, or  pete.collins@us.pwc.com .