EFRAG’s Post

Transcript

Hello everyone, My name is Vasilis Danielis. I'm a staff member of the Fr pillar at Defrag and a member of the Efrog Connectivity Project team. As part of the Aircraft Proactive Research Work Plan project on connectivity between financial reporting and sustainability reporting, Efrog has recently published a paper on connectivity considerations and boundaries of the different annual report sections. To give an overview of the published paper, I'm pleased to be joined by James Berger, a partner at Deloitte Germany. And F are big Vice Chair Yens is also chair of Defrag Connectivity advisory panel at 22% multi stakeholder group that contributes to the effort connectivity project. I'm also joined online by Leo van der Tas, a professor of corporate reporting at Tilburg University and a retired partner at EY. Leo is the leader of the EFRAT Connectivity Advisory Panel Concepts Subgroup, which has helped shape the contents of the published paper. Before asking for Leos and Jensen's perspectives, I'd note that the primary reason Ezra has published this paper is to contribute to a shared understanding among stakeholders and connectivity, including what the term means and what its benefits are. Another area of attention are the boundaries of the different annual report sections. The paper focuses on the financial statements, the sustainability statement, which is located in the management report in the EU and in the management report more broadly. As mentioned, Leo and Yens will share the headlines on the key topics of this paper. Leo, what do you would you consider to the points of note on connectivity made in this paper? Thank you very much and hello everyone. I'm really pleased Africa has released this initial paper on quantity reflecting the research done so far by Africa in this area. And it lays down the results of exploring what connectivity is and how it can help companies tell a coherent story throughout the various components of the corporate report. So those components. Obviously includes the financial statements and the sustainability report, but also other parts such as the renovation report, the CEO letter, etc. So we found that positivity means different things for different stakeholders that are all involved in corporate reporting. And the increasing importance of sustainability information, but also the growing interaction of that sustainability information with other parts of the corporate report as well as the broadening of the stakeholder groups using that core report has made ever more important to be clear on what connectivity means and in particularly well this try to achieve. So if I would need to pick 3 messages from the many in this initial paper, I would highlight the following three. So first, connectivity is about telling a coherent story starting from the strategy and the business model as discussed by management in their management report. Through the sustainability goals and achievements, right down to the presentation of the financial performance in the financial statements, and this whole chain needs to be reconnected. The second quantity means avoiding unnecessary duplication, but at the same time to different roles and functions of the various components of the corporate port mean that sometimes the same phenomena are approached from various angles, which is important to provide the whole story. So assumptions used and information provided may not always be exactly the same in the various components, and that will require further explanation. We also highlighted that cross references between components of the corporate board to avoid duplication will not always be possible due to the restrictions in financial reporting requirements and the potential legal and insurance implications. The third thing I wanted to mention is that the relationship between the various components changes overtime. So material sustainability topics that are not material for the financial statements this year may well become material for the financial statements next year, requiring a different explanation of the connectivity between the two components of the corporate report. So I would encourage the audience to read the initial paper and I sincerely hope that this paper will contribute to a better understanding of the interaction between sustainability information and financial statements and will help preparers take a holistic view of the entire corporate report at teleconference story, from strategy to execution and results. Thank you very much. Yes, the paper also addresses boundaries of the annual report sections. What are the points of note made on this topic? Thank you for Chili's for the question and also the kind introduction. From a used corporate reporting standpoint, there are similarities and differences between the objectives, audiences and materiality and other key features like time arises, for example, between financial statements, the sustainability statement in the management report. And the remainder of the management report and the rationale is materiality of items is a function of objectives and audience. And for example, financial statements are geared towards a different audience than sustainability statements. And so that also follows that items flow between the statements overtime because they might become relevant for financial statements that have been relevant before that in sustainability statements. The resulting boundaries defined what type of information fits into which section of the annual report, and our analysis help identifying these Gray areas where there might be duplicated or missing information, or where stakeholders have different views on what actually is the best location for sustainability information or for certain information. This might be an area where we need more guidance going forward and the concept of boundaries is in particularly relevant for financial statements because. Sometimes items are not reported there because it follows certain concepts for a certain audience. The users, the primary users of financial statements, which are providers of financial capital. Existing generally accepted accounting principles GAP have concepts around what can be recognised, measured, disclosed and presented. And these criterias have been formulated with the objective of providing those users with relevant information. And the thresholds are higher than in other parts of the annual report. To address some of the Gray areas at the expectation gaps, the paper proposes for measures developer sustainability reporting conceptual framework and enhance the guidance on management reports. Reconsider assurance requirements because we heard a lot that some people want information in the financial statements because assurances provided over it. And so that's something to consider and also to further identify user needs and educate stakeholders how the different parts of the annual report interact with each other. The initial paper we have published provides some food for thought to to inspire, to stimulate the debate internationally. Connectivity is a hot topic at the moment. It's a much talked about and it's basically the run up for the discussion paper that will be published a bit later. I hope the readers find it inspiring. I hope a lot of people will read it and if you have any questions, if we have stakeholders have questions, they should feel feel free to reach out to you and discuss. Thank you very much, James. In conclusion, as both Leo and Yens have mentioned, we encourage you to read this paper even though it is not a consultation paper. Any comments on its contents will be welcome. Finally, I'd note that at a later date, Ezra will be issuing a discussion paper that will include illustrations of connectivity. The discussion. The discussion paper will have questions for public consultation. Thanks for listening.