How are most successful businesses managed today? Are historical financial statements or the budget the sole sources of data and information upon which critical decisions are formulated?

If organizations were managed solely on historical information, the result would be a tremendous loss of opportunity. Adept organizations utilize historical information, along with real-time indicators that are predictive in nature to manage day-to-day operations and make strategic decisions. Technology has provided access to more timely, accurate and relevant information in a
cost-efficient manner for virtually all entities.

Enhanced Business Reporting (EBR) responds to the need for better, more structured guidance on how to report such information. With EBR, the focus of communicating data shifts from a snapshot based primarily on financial, historical or lagging information to a model that incorporates both financial and nonfinancial data, including leading indicators.

EBR provides for a richer disclosure of financial and nonfinancial business performance measures, so companies can provide all stakeholders with the information they need to make better decisions.

The Enhanced Business Reporting Consortium (EBRC) is leading an effort to improve the quality, integrity and transparency of information in a cost-effective and time-efficient manner. Members collaborate to develop a voluntary, global disclosure framework designed to be the “gold standard” in business reporting.

In addition to developing the strategy for implementing EBR through the creation of the EBRC, the AICPA Special Committee on Enhanced Business Reporting established a public company task force and the private company task force to conduct research and develop examples of how EBR reports may appear.

Public Company Sample Reports
The Public Company Task Force spent most of 2004 preparing several sample reports appropriate for public companies (available for review online). In addition to showing potential approaches to EBR, the reports demonstrate the potential benefits and commercial opportunities for stakeholders. The reports demonstrate sample disclosures for a number of diverse industries, as well as how to apply XBRL and other business reporting technologies.

The AICPA Public Company Task Force is now studying ways to simplify existing reporting requirements for public companies within the context of EBR.

Private Company Efforts
The AICPA Private Company EBR Task Force, chaired by Harold Monk, CPA, CFE, managing partner of Davis Monk and Co., in Gainesville, Fla., is working on a similar effort, but with a view to ensuring the guidelines of EBR are scaleable for privately held businesses.

“We want to make financial reporting more transparent at all levels and make sure users get the type of information they find important in their decision making,” Monk says.

Thomas Foard, CPA, CFM, CMA, vice president and CFO of Publishers Circulation Fulfillment, Inc. based in Towson, Md., also serves on the AICPA Private Company EBR Task Force. Foard sees the primary difference in public versus private company shareholders being that public shareholders tend to naturally focus more on reported earnings, whereas privately held shareholders tend to focus more on cash flow.

Aside from this primary difference in business ownership and financial interest, private companies have basically the same portfolio of stakeholders as the public companies, including bankers, credit agencies, vendors, employees, etc. These stakeholders deserve the same level of transparency for the privately held entity as the public company, and thus Foard feels the need to develop an EBR framework that is scalable and relevant for privately held entities.

"We need to provide the framework and tools for the privately held companies to communicate the company's business model, strategic direction, underlying business drivers and key performance indicators, and management's assessment of risks and opportunities. There are clearly common themes in the EBR model that are appropriate for both public and private companies,” Foard said. “The challenge will be scalability, as privately-held companies can sometimes be much larger than some of their public company counterparts, but are usually much smaller with limited financial management resources, which may be challenged in the ability to prepare EBR reports. Recognizing this, our goal is to develop an EBR framework that is effective for privately-held companies while also providing tools that provide efficiency," he explained.

Private Company Sample Reports and Survey
The AICPA Private Company EBR Task Force prepared sample reports that demonstrated what enhanced business reporting might look like for privately held companies. As part of this effort, the Task Force designed an online survey to collect the opinions of the preparers, creditors, business owners and other key stakeholders about the relevance, usefulness and effectiveness on the components of the sample reports.

The feedback will be used as input in the development of a comprehensive, voluntary EBR framework, appropriate for privately held companies. The sample reports and the survey can be accessed online.

The accounting profession has a key role to play in protecting public interest and bolstering trust in the financial reporting process. As EBR makes business reporting more transparent, it will strengthen the economy and protect investors and other stakeholders.

About the Author
Caroline C. Boudreaux, CPA, CSPM, is a partner of Boudreaux, Henderson & Co. New Iberia, La. She is a member of the AICPA Private Company Enhanced Business Reporting Task Force.