Looking at financial statement trends for 2022, we can see that some important developments have impacted businesses worldwide. One of the biggest trends is the increasing use of technology and data analysis in financial reporting. Businesses of all sizes have begun to adopt new tools and platforms to streamline their reporting processes and gain insight into their financial performance.
In addition, sustainability reporting is increasingly in focus as companies are increasingly required to provide information about their environmental, social, and governance practices. Finally, regulatory changes shape financial reporting trends, with new rules and guidelines implemented in various countries and regions. These trends have significantly impacted how companies approach financial statements and will continue to do so in the future.
As 2023 begins, it’s important to keep up with the latest trends in financial reporting to ensure your business stays on track and can make informed decisions. This blog post will explore six key financial reporting trends companies should watch out for in the coming year. From new technologies and data analytics to regulatory changes and sustainability reporting, these trends will significantly impact how companies approach financial reporting in 2023 and more than that. Stay tuned to learn more about these exciting developments and their potential impact on your business.
INCREASED FOCUS ON DIGITAL REPORTING WITH XBRL
Digital reporting was a hit in 2022. In the United States, the Senate passed the Financial Data Transparency Act on December 15, mandating eight major financial regulators to adopt using data standards (read as XBRL). In the EU, the Corporate Sustainability Reporting Directive (CSRD), which mandates around 50,000 companies in the EU to provide non-financial digital reports to their stakeholders, has become a reality. Non-financial reporting or ESG in digital format is growing in all geographies, and there is likely to be more activity in this area by 2023.
The technology behind digital financial and non-financial reporting is XBRL or Extended Business Reporting Language. Regulators require companies that submit reports in digital format to provide the XBRL classification – a machine-readable set of tags used to label or mark up business information in documents. Digital reporting using XBRL technology makes business reports more accessible, easier to analyze and compare, and convenient to deliver. In addition, because computers understand the information in XBRL reports, software solutions interact with XBRL data in many ways.
FINANCIAL STATEMENT ANALYSIS WILL BE KING
Enterprise technologies to improve financial decision-making have evolved to handle massive amounts of information from internal and external sources. But, more importantly, businesses can access and refine a wealth of data to generate insights that improve their operations. This readily available information, combined with tools that provide artificial intelligence and machine learning capabilities, allows companies to observe trends, compare themselves with peers, and optimize profit versus cost—manufacturing charges.
Financial analytics platforms are driving the trend of looking at large amounts of historical and current data to make trading decisions. Most advanced financial reporting and disclosure management solutions have built-in analytics modules. However, the best solutions that integrate with machine-readable data feeds are reported in XBRL format. XBRL is a technology that drives digital financial and non-financial reporting worldwide.
Most market regulators and central banks want entities under their jurisdiction to report financial information in XBRL format. The company’s XBRL data is always available, especially in the US, UK, and European Union.
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REAL-TIME UPDATES WILL REPLACE PERIODIC REPORTS
Financial reporting has traditionally been an activity performed periodically. The finance team reviews business transactions and cash flows for each month, quarter, and year to compile reports for internal and external stakeholders. However, in a world of real-time information, companies can only play with data representative of their immediate situation. Hourly Demand is a real-time reporting system that helps financial teams record ongoing transactions and observe their immediate impacts. Such real-time data will speed up business decision-making.
As a result, companies will benefit from investing in solutions that facilitate real-time accounting and tools that provide peer insights and help keep an eye on trends in the industry. In 2023, companies can upgrade their financial reporting processes to provide stakeholders with up-to-date data. Financial and digital reporting solutions like IRIS CARBON® provide integration with disclosure management modules and business analytics solutions so companies can access data over time in real time from internal and external sources.
INTEGRATED REPORTING WILL BECOME MORE IMPORTANT
Organizations publish reports designed for different purposes. While financial and sustainability reports provide a holistic view to specific stakeholders, they do not communicate business value from an overall perspective. Integrated reports, on the other hand, are documents that present investors and stakeholders with an overview of how organizations intend to create value. Therefore, they should be distinct from combined reports, which provide only financial and non-financial information in a single large document. According to the IFRS Foundation, organizations should create integrated reports to communicate how their strategy, governance, performance, and outlook drive value creation over time.
The IFRS Foundation’s International Sustainability Standards Board (ISSB) has merged with the International Integrated Reporting Council (IIRC), which means that the IASB’s sustainability reporting standards will include integrated reporting principles. With stakeholders increasingly focusing on the non-financial aspects of the business, the need for integrated reporting will continue to grow in 2023.
EQUAL FOCUS ON FINANCIAL AND NON-FINANCIAL REPORTING
Business stakeholders have realized that financial statements provide a limited view of an organization’s business. An organization is much more than the financial value it is trying to create. Its interaction with the environment and society give stakeholders a more holistic picture. Environmental, Social, and Governance (ESG) reporting made great strides in 2022, with regulators worldwide requiring companies to prepare sustainability reports using standards developed by organizations such as the Task Force on Climate-Related Financial Disclosures (TCFD) and the European Organization for Sustainable Development.
Reporting Standards (ESRS). The International Sustainability Standards Board (ISSB) is developing standards that could soon become the global standard for sustainability reporting. These developments represent a shift in stakeholder thinking about sustainability. The rapid increase in climate-induced disasters worldwide has underscored the urgent need to stem the tides and work to reduce emissions that contribute to global warming. By 2023, the business community will have more action and legislation to limit pollution and prevent business practices that promote human rights violations, consciously or otherwise.
CLOUD-BASED SOLUTIONS WILL PREVAIL
Businesses have traditionally relied on on-premises software solutions. However, these on-premises solutions or legacy systems are not well suited for remote or hybrid working – a trend that has caught on due to the pandemic. Cloud-based solutions are best suited for financial reporting teams separated by time and space.
These solutions are collaboration or provisioning features that allow multiple users to work on a single document, each with their own specific task. Cloud-based solutions have gained widespread acceptance because they support hybrid or remote environments, provide greater data security, and are maintained by the software vendor. On-premise solutions, however, require ongoing maintenance and are less protected against data security incidents.