Intelligent Disclosure

Regulatory compliance is an organization's ability to adhere to the rules, regulations, guidelines and laws set by presiding authorities, including government, regulatory, and accounting bodies. These rules can vary by industry, type, and size of business. Typically, regulatory compliance means that an organization has to disclose company information — ranging from business activities, finances, operations, and performance – to the overseeing regulator. The audience of these reports includes accounting standards boards, governments, stakeholders and the investing public.

Complying organizations must create their disclosures in-line with the rules and standards of presiding regulator. Typically, regulators create rules 1. to ensure transparency into a company’s activities for investors and 2. To create a level playing field for comparison across markets.

Regulatory compliance levels the playing field. When investors are looking to buy into a company, regulatory rules, standards, and reporting requirements work to create a basis for comparison across markets. Disclosure reports allow investors, analysts, and stakeholders to understand an organization’s position in the market.

Regulatory compliance holds organizations accountable. Accounting standards ensure that companies are using like-ways of disclosing figures so that everyone uses the same formulas to prepare the numbers.
Regulatory compliance is public facing. Corporate compliance refers to internal policies and rules. For businesses, regulatory compliance is akin to following the law. Regulatory compliance requirements are often developed to protect the investing public.
Rules are always changing. Compliance requirements are constantly in flux. Once a standard is issued, you can expect amendments and updates. This natural evolution occurs as global regulations converge, new players enter the markets, mistakes are made, and major events occur, like the 2008 financial crisis, the dot com crash of the 90s, and COVID-19.

Regulatory accounting principles - also known as RAP - are a set of rules and regulations that were created with the intention of helping low net worth saving and loan associations (S&Ls) meet capital requirements by the Federal Home Loan Bank Board. The regulatory accounting principles allowed S&Ls to amortize gains and losses over long periods of time. Although the rules were created with the best intentions, they were in effect the cause of  the 1980s savings and loan crisis because they allowed S&Ls to inflate their net worth. In the end, RAP was phased out by the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

If disclosure management is the processes a company undergoes in order to manage data, adhere to regulations and prepare disclosures for public reports, then collaborative disclosure management occurs when contributors from all departments, regions and LoBs can complete their subsequent contributions using functions that recognize, facilitate and optimize the collaborative nature of disclosure. Typically, collaborative disclosure management is achieved through the use of software that:

• unifies disclosure related processes (data collection, consolidation, reporting and analysis) so they can be completed in a single system 
• equips all contributors with a single database of performance information, including financial and operational data 
• enables contributors to contribute simultaneously even within a single document and also communicate with one another 
• provides managers with an audit trail and log of all contributor activities, down to the metadata 
• reduces bottlenecks, missed deadlines 
• keeps contributors on track and managing finance executives in the know with a process workflow and inter-system approvals 

Collaborative disclosure management is valuable to organizations because inherently, tying processes and people together streamlines otherwise piecemeal disclosure management process. By keeping communication trails logged, having an up to date source of financials, automating data refresh, maintaining a single version of reports and keeping tabs on contributors, disclosures are not only more accurate but are produced faster and with less anxiety.

Governance, risk and compliance (GRC) are three pillars to attaining corporate objectives.

• Governance refers to the management of a company, including executives, management and even the guiding principles or ethics that govern the company or processes.
• Risk implicitly means risk management. Risk management is the way a company analyzes, accounts and prepares for risks and the measures they put into place to prevent the impact of business risks, both financial and operational.
• Compliance is a company’s ability to monitor, adapt and adhere to standards set by regulators and the government.

GRC crosses departments, LoBs, and the entire organization. GRC policies require cross functional communication, unity and internal controls that include IT, security, and auditing. Gartner research defines GRC as a verb, a term of action, describing it as enabling “ the simplification, automation, and integration of enterprise, operational, and IT risk management processes and data.”

COSO is the Committee of Sponsoring Organizations of the Treadway Commission. Established in the US in 1992, it’s a joint initiative between the Institute of Management Accountants (IMA), the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), the Institute of Internal Auditors (IIA) and Financial Executives International (FEI) to provide thought leadership to executive management and governing entities. They aspire to do this through the development of frameworks and guidance on enterprise risk management, internal control and fraud deterrence.

COSO developed a model for evaluating internal controls which is widely used and accepted by organizations. The system involves 17 components which serve to set the company’s success. These can fit into the following buckets:

1. Control Environment
2. Risk Assessment
3. Control Activities
4. Information and Communication
5. Monitoring

The Last Mile of Finance, a term commonly used to in the CPM space, refers to the financial business processes that occur after close through filing of reports with internal and external stakeholders, the public and regulatory authorities. The “last mile” is borrowed from the communications industry where the last mile of wire used to connect phones in homes and business is the most complex. Similarly, the financial processes covered in the last mile of finance are also mired in complexity, frustration and often, crossed wires.