A Vision Problem at Top Audit Firms

To be sure, finance executives might be wary about adding scads of data to reports that many already find brutally weighty. But they could also see EBR as subtracting information and effort rather than adding to them, says Richard Kilgust, a PwC partner who was involved in putting the auditors' vision statement together. For example, corporations could start picking and choosing the nonfinancial data they supply, "instead of having 40 pages of footnotes that not that many understand and that have a high cost of compliance" to supply, he says.

Much of the information provided would enable investors to compare companies within a given industry. For instance, the data given in an oil and gas company's income statement might not be nearly as relevant in gauging the company's true value as how much it spends for each unit of fuel it gets from the ground, says Kilgust.

The devil, however, will be in the details. While generally accepted accounting principles enforce a fair amount of uniformity in reporting such things as revenues, standardizing reports of nonfinancial items like customer satisfaction poses nearly insurmountable problems, says Christopher Whalen, a managing director at Institutional Risk Analytics. A measure like customer satisfaction is "entirely subjective," he notes. "Unless you have tight guidelines, it's not the kind of data point an analyst can use."

Similarly, big cell-phone companies are promoting their performance in terms of "fewest dropped calls." If an investor is given no information about how the company collects the data and defines the benchmark, "then it's just marketing," says Whalen.

For their part, EBR advocates are trying to answer such objections by tightening the focus on the data presented. Framers of the new reporting model are trying to get a small, set number of indicators — say five, for instance — that would apply consistently to the companies in a given industry, says Amy Pawlicki, the American Institute of Certified Public Accountants's director of business reporting, assurance, and advisory services.

The standardization of nonfinancial measures will no doubt be on the agenda next year, when the audit firms will conduct a series of roundtables on business reporting. The sessions will be held "with key stakeholders in company reporting to hear what information they want public companies to produce and what auditor assurance they want on that information," according to the report.

Overall, the CEOs say, they "want this document to be the beginning, and not the end, of a dialogue about the future of business reporting." But to date, the reporting revolution lacks the allegiance of CFOs, a constituency it will need to get off square one. And it's not likely to pick up that crucial backing if it's led by groups as self-interested as the biggest audit firms.

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