Regulatory reporting: everything you need to know to get ahead and be prepared

It’s a new year. It's a fresh start. But for finance teams, a new year is plush with year-end, audits, and changes to regulatory reporting. And everything piles on at the exact. same. time.

How can finance teams prepare for and perform an efficient year-end close and audit, and get ahead of changes to regulatory reporting all at the same time?

What is regulatory reporting in finance and why is it important?

In finance, regulatory reporting is the process of consolidating data into a report, often following a specific framework, and submitting it to a regulatory body like the Securities and Exchange Commission. The report demonstrates that a business has met compliance requirements.

Regulatory reporting is important because it ensures transparency of your business operations. Regulatory reporting is mandated in some regions, like the EU, under specific directives like the Corporate Sustainability Reporting Directive (CSRD).

What are the types of regulatory reporting?

Here is a look at the most common types of regulatory reporting, what each discloses, and where the regulations are applicable.

• Environmental, Social, and Governance (ESG) reporting, is a set of standards used to evaluate a company’s environmental and social impact. ESG reports are of interest to internal and external stakeholders, and illustrate the progress and steps taken towards achieving ESG goals and objectives. It’s common for the CFO to own ESG reporting within an organization.
  
• International Financial Reporting Standards (IFRS), are accounting rules for financial statements of public companies. The IFRS is intended to promote global transparency, consistency, and comparability. The IFRS is issued by the International Accounting Standards Board (IASB). IFRS is applicable to 167 jurisdictions, including the EU. The United States is not applicable.
  
• Generally Accepted Accounting Principles (GAAP) are a set of accounting rules, standards, and procedures implemented by the Financial Accouting Standards Board (FASB). These regulations are only applicable to US companies.
  
• Global Minimum Tax (Pillar 2) is a global minimum tax intended to limit tax competition. This regulation ensures that large, multi-national enterprises pay a minimum tax on income from each jurisdiction they operate in.

Now that we’ve covered the basics, let’s get into the insights of regulatory reporting that you won’t find in traditional documentation.

Everything you need to know about regulatory reporting as a competitive advantage

Regulatory reporting is a competitive advantage. Especially if you’re following best practices before it’s mandated for your company or region.

As of the end of January 2024, ESG reporting isn’t mandatory in the United States or Canada. On the contrary, more than 50,000 EU based companies are subject to CSRD compliance, including ESG reporting. But for the areas that aren’t yet mandated, that doesn’t mean that some companies aren’t already doing it.

While some companies are waiting to be mandated before undertaking any regulatory reporting requirements, large companies like Proctor & Gamble or GM are already doing regulatory reporting to meet the interest of their Board and their customers. Why? It signals a sustainable brand, charts a course for a profitable future, and mitigates risks.

The reality is that regulations are here. If you’re doing $50M or more in business in the European Union, you are subject to the CSRD mandates. Similarly, if you’re doing business in California, you have to report your Scope 3 emissions. The difference? California isn’t waiting for the SEC to mandate this. They’re implementing their own rules. Why? Reporting is a gateway to doing business. Regulatory reporting is a signal of transparency. You’re building trust with your Board, your auditors, and your customers. It’s a win for you and a win for your consumers.

Where the challenge lies is in the mid-market. Mid-market companies haven’t been required to implement regulatory reporting, like ESG. So if no one’s asking for it, what’s the benefit? If it won’t fundamentally change the way you’re working, why would you invest the cost to do ESG reporting before you have to?

For mid-market companies outside of EU regulations or California, there is a competitive advantage of doing regulatory reporting before it’s mandatory.

If you want to keep doing business with retailers, suppliers, and your customers – you have to show what you’re doing.

Similar to California’s own rules, companies are following that lead. Large companies are implementing their own rules too. That means that in order to do business with them, you have to comply with their regulatory reporting requirements, versus waiting for regulators to come down with rules.

Now, it's a matter of preparing in advance to get ahead of regulatory reporting, so that you’re ready once it’s mandated.

How to get ahead of regulatory reporting

The truth is that you don’t have to make a large financial investment right now in order to get ahead. Your biggest investment is time. Here are four ways you can get ahead and be ready when regulatory reporting is mandated.

1. Do a readiness assessment
   Understand what data you’re working with. Where is it stored? How are you collecting it? And what does an ideal governance and reporting structure look like for your organization?
   
2. Determine a starting point
   Do a quick analysis and determine what makes sense as a starting point when you begin reporting. How will you gather your vendor information to build your reports?
   
3. Invest your time, not money
   Invest time into doing research and understanding the landscape. What can you accomplish now so you’re better prepared? How can you set yourself up for success once mandates are here? Investing time now in your preparation means you’ll already be steps ahead of the starting line once regulatory reporting is required, rather than starting from scratch.
   
4. Build a regulatory reporting toolkit
   When you’re ready to start, make sure you are properly equipped with tools to support you. Compliance doesn’t have to be daunting. With the right tools and processes, you can approach regulatory reporting with precision, efficiency, and confidence. A financial performance platform, like Prophix, can help make complex ESG reporting frameworks into self-serve analysis and reporting. Learn more about ESG reporting with Prophix.

To learn more about the changing regulatory landscape and how you can prepare, tune into our live webinar: How to prepare for year end, audit, and changes to regulations in 2024 on February 15 (North America) and February 22 (Europe and UK).