What is compliance reporting?
Compliance reporting has a few meanings. Generally speaking, compliance reports demonstrate a company adheres to a set of industry standards, rules, regulations and laws required by governments or regulatory bodies.
Compliance reports might detail an organization’s progress on specific compliance initiative or provide an overview of a company’s compliance efforts. Compliance reports might be mandatory, or they might be internal oversight mechanisms.
Compliance reports serve as proof that your organization is following the stipulations of a particular regulatory standard. Violating laws, rules, and regulations can result in damage to reputations, hefty penalties, and in some cases, imprisonment or forced closure.
Who uses compliance reports?
Depending on the focus of the reports, compliance reports may be reviewed and delivered to different audiences including regulators, standards boards, the board of directors, senior executives, and auditors.
Examples of compliance reports
Sarbanes-Oxley Act, 2002 (SOX)
SOX is a US federal law that mandates that US publicly-traded companies, wholly-owned subsidiaries, and foreign companies that are publicly traded in the US must maintain certain financial record keeping and reporting practices.
ESG reporting is the disclosure of environmental, social and corporate governance data. Its purpose is to shed light on a company’s ESG activities while improving investor transparency and inspiring other organizations to do the same. With the exception of the EU, compliance with ESG reporting is mostly voluntary, but momentum towards mandatory compliance is building.
General Data Protection Regulation (GDPR)
GDPR requires that businesses to protect the personal data and privacy of EU citizens for transactions that occur within EU member states and regulates the exportation of personal data outside the EU. To prove compliance with GDPR and facilitate the board’s oversight, you may choose to document policies in line with GDPR.
Lease accounting: IFRS 16 and ASC 842
Lease accounting standards brought major challenges to accounting practices. Among them were bringing operating leases onto the balance sheet, which exposed billions dollars of lease liabilities. Many organizations had to take on large scale software projects in order to manage the standard’s data and reporting requirements.
Solvency II is a Directive in EU law that harmonizes insurance regulations. The main objective was to reduce the risk of insolvency by regulating the amount of capital that EU insurance companies must hold. Pillar III of this regulation imposed a heavy load of reporting and transparency requirements. Insurers had to submit detailed quantitative information on their activities that followed a specific set of quantitative reporting templates.
What should a compliance report include?
The contents of a compliance report will depend largely on the regulation, law, or rules you’re reporting on. Some regulatory reports have a predetermined structure you’ll need to follow. Universally, all compliance reports will include:
- The scope of the report: What was and what was not reviewed by the compliance officer.
- A review of the compliance process: A description of what the compliance process is, the procedures and processes in place to meet requirements, and how they work.
- A summary of findings: Are the processes working? What are their strengths and weaknesses? Are there any risks? What are the results?
- Next steps: How can your organization improve compliance going forward?
What are the objectives of compliance reporting?
- Fulfilling regulatory requirements: Reports may be required as part of the specific regulatory requirement or law your organization is adhering to.
- Proof of compliance: A compliance report provides you with concrete evidence that your company is adhering to regulations correctly. An inability to create a compliance report could indicate that your business is vulnerable to serious legal issues.
- Provide a synopsis for decision makers: Internal stakeholders outside the realm of the compliance office, like the board and other executive-level decision makers, may want to check in to ensure compliance requirements are being met, how they’re being met, and determine if any further action is needed.
- Identify areas of improvement: Compliance reporting is a meaningful means of oversight. A compliance report subject to an internal audit might reveal areas where compliance can be improved in the future.
How to develop a robust compliance reporting process?
Centralize data collection: Use a CPM software that automates data collection and centralizes the required financial and non-financial data, both real-time and historical.
KPI monitoring: Calculate, set, and monitor KPIs on a dashboard for an at-a-glance understanding of the metrics required by the compliance regulation in question.
Automated reporting: Automatically complete pre-built compliance reporting templates with data and visualize the numbers for easier consumption by stakeholders.