- Michele Embling FCA’s vision as chair of XRB is to build trust and confidence in financial reporting.
- She says encouraging organisations to include non-financial information in financial reports is critical.
- Embling believes it is inevitable that non-financial information will one day be subject to audit.
By Marianna Papadakis
When Michele Embling FCA stepped up to the role of chair at New Zealand’s External Reporting Board (XRB) in May 2019, it was with a vision to build trust and confidence in financial reporting.
“We must ensure our framework is sustainable and there is accountability in the information provided by organisations,” she says.
Embling is particularly concerned about the growing scepticism and lack of trust in information that is put out by reporting entities.
The XRB is an independent Crown entity responsible for setting and overseeing New Zealand’s accounting, auditing and assurance standards. It is a natural home for Embling’s experience and expertise.
With a career specialising in financial services and the public sector – including extensive experience advising organisations on complex financial reporting matters – and more than 15 years focusing on international financial reporting standards, Embling brings a measured yet dynamic approach to the standard-setting body’s strategy.
She has served on the XRB board since its inception in 2011, and before that was the inaugural chair of the New Zealand Accounting Standards Board. Embling is also chair of PwC New Zealand, a role she has held since October 2016, following 14 years in various senior leadership positions at the firm.
XRB’s strategic priorities for the longer term
Picture: Michele Embling FCA.
One of Embling’s first critical tasks as XRB chair was to lead the recruitment process for a new chief executive officer to replace Warren Allen ahead of his planned retirement in December 2019. In November 2019, it was announced that April Mackenzie – a former interim chief executive for the International Valuation Standards Council and head of governance for Grant Thornton International – would take on the role.
Another key priority in 2019 has been completing a targeted review of the New Zealand Accounting Standards Framework. The review closed for submissions on 15 November and is due to report back in 2020.
But Embling says she is most focused on longer-term strategic priorities for the organisation. A daily 6am walk provides “productive thinking” time during which she maps out a path to achieving her goals – including what she hopes to achieve in her five-year term as XRB chair.
Today’s reporting landscape is vastly different to eight years ago when the XRB was formed to unite the functions of the New Zealand Accounting Standards Board and the New Zealand Auditing and Assurance Standards Board.
“We have less focus on globalisation and more on nationalism in the standards arena today,” Embling explains.
The XRB’s top strategic priorities include establishing the ‘extended external reporting regime’. Encouraging more organisations to include non-financial information in their financial reports is critical, says Embling.
Investors and other stakeholders are demanding broader information than is currently included in financial reports and are increasingly factoring it into their processes and decision-making.
“Financial statements present only one side of an organisation’s story. The addition of non-financial information gives a more holistic picture,” Embling says.
“Financial statements present only one side of an organisation’s story. The addition of non-financial information gives a more holistic picture.”
Extended external reporting is an overarching term for the many corporate reporting frameworks that include information beyond what is typically included in an organisation’s financial statements. It includes environmental, social and governance (ESG) matters, corporate responsibility, and integrated reporting – as well as management analysis and commentary, plus analysis of long-term business sustainability.
According to an XRB survey undertaken in collaboration with Wellington-based think tank the McGuinness Institute in 2017, more than 90% of users accessed some form of extended external reporting to understand a company.
“Stakeholders and the community want to understand more about organisations, their business models, culture, governance and prospects, as well as their environmental and social impacts,” Embling explains.
To help organisations find the most relevant standards and frameworks, the XRB has pooled local and international resources into what it calls an Extended External Navigational Resource.
“This is helping organisations to ascertain what they think is important and what standards they think they should adopt,” Embling says. She points to New Zealand’s first-ever Wellbeing Budget, delivered in May 2019, as an example of how goals and outcomes can be defined and measured in financial and non-financial terms.
“It’s not the first time New Zealand’s public sector has led globally on reporting. New Zealand was among the first to do a full set of accounts. Some countries and large organisations still don’t,” she says.
The non-financial future of audit
Embling believes it is inevitable that non-financial information one day will be subject to audit or other forms of assurance.
According to the survey by the McGuinness Institute, about 76% of users support the view that non-financial information should be independently assured.
“The audit product itself will evolve and expand in response to the needs of users,” Embling explains. “We [the XRB] are thinking about the standards an independent auditor could apply to give trust and confidence in the information that is being published.”
Assurance over extended external reporting is rapidly evolving. Greater rigour has already evolved about climate and environmental impacts as well as gender and diversity targets.
The greater challenge, for both organisations and the developers of standards, lies in the less tangible elements such as sustainability and assessments of a company’s longer-term prospects
Evolving in an international context
All this also comes at a time of heightened debate about the quality and independence of auditing.
“We are doing work on what is meant by audit quality and people have different views on that,” Embling says. “We need to think very carefully about the way forward. The profession, regulators, auditors, directors and management all have a role to play.”
Embling is keen to ensure the XRB remains active in contributing to international developments.
“Ensuring consistency and the right balance between regulation, policy and guidance is important,” she says.
To this end, the XRB is participating in the International Integrated Reporting Council’s Corporate Reporting Dialogue and Better Alignment Project.
It is also monitoring and contributing to the International Accounting Standards Board’s update of the IFRS Practice Statement 1: Management Commentary to reflect new developments in integrated and sustainability reporting.
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