Compliance reporting: everything you need to know

What is compliance reporting?

Compliance reporting is when an organization provides concrete evidence that its reporting practices comply with external standards or internal controls.

It involves compiling, verifying, and submitting accurate financial data for review by relevant regulatory authorities. Compliance reporting includes activities like:

• Making timely reports of trading operations
• Documenting customer transactions
• Recording and reporting on investments
• Maintaining risk management systems

Compliance reporting ensures that firms meet their legal requirements for financial sector operations.

It also helps ensure that all market participants (lenders, investors, customers) have equal access to relevant information about the firm, making it easier to set up and maintain fair and transparent markets.

Compliance reporting makes important information easier to access, improving decision-making for potential investors.

Internal versus external compliance reporting

Internal compliance reporting is the process of reviewing and reporting on the company's internal controls.

It creates regularly generated analytics and data on important internal metrics, such as reports on customer transactions and risk management practices.

The documents produced this way are typically for internal use to ensure that the firm's operations meet its internal policy requirements. It also provides valuable business insights to guide policy and improve processes.

External compliance reporting is used when a company needs to report its activities to outside regulatory authorities, such as tax auditors, industry regulators, financial oversight committees, or investors. 

For instance, the Securities and Exchange Commission (SEC) outlines many regulations for publicly traded companies. This type of reporting includes submitting periodic filings and responding to requests for additional information or clarification.

It also includes requirements for public disclosures about operations to ensure market transparency and fairness.

Why do companies need compliance reports?

Companies maintain compliance initiatives to ensure their operations comply with internal controls or outside regulatory agency requirements. This reporting ensures that all activities are conducted ethically and responsibly and adhere to all applicable laws and regulations. 

It’s good business. Compliance reporting also allows firms to demonstrate transparency by providing investors with the necessary information to make informed decisions when investing or trading with them. It helps firms build stakeholder trust, secure customer loyalty, increase public confidence, and protect the brand from reputational harm. 

It’s the law. Compliance reporting is necessary to avoid negative outcomes from outside regulatory bodies. When regulatory requirements are ignored, it can result in fines, penalties, loss of licensure, loss of credit ratings, or sanctions from government and regulatory agencies.

Role of FP&A in compliance reporting

Understanding the role of Financial Planning and Analysis (FP&A) in compliance reporting is essential for organizations aiming to navigate complex regulatory landscapes effectively. 

FP&A plays a multifaceted role encompassing data aggregation, financial forecasting, risk assessment, budgeting, monitoring, and stakeholder communication. Through meticulous data gathering and analysis, FP&A ensures the accuracy and integrity of compliance-related information, providing valuable insights for decision-making. 

Moreover, FP&A integrates compliance requirements into financial projections, aligning them with organizational goals while identifying and mitigating compliance risks. 

FP&A optimizes compliance budgeting, balancing efficiency and effectiveness, while tracking performance through regular monitoring and reporting. This fosters collaboration across departments and strengthens organizational resilience against regulatory challenges.

Types of compliance reporting

When most people think of corporate compliance reporting, they think of accounting and tax compliance.

But depending on your industry and data security requirements, your organization may conduct many forms of compliance measures and reporting.

Here are some of the most common forms of data and financial reporting for regulatory compliance: 

Generally accepted accounting principles (GAAP) 

GAAP stands for Generally Accepted Accounting Principles.

It’s a set of guidelines and standards that companies must follow when reporting financial information. Compliance with these principles is essential to sound financial reporting, especially for publicly traded companies.

GAAP compliance ensures that firms meet their legal requirements for financial sector operations.

At its core, compliance with GAAP helps regulate the markets and protect all participants from potential risks and losses due to inaccurate reporting.

ISO 

The ISO standard is a set of optional international regulations that firms subscribe to demonstrate data security and quality control.

ISO sets out requirements and guidance for financial reporting, audit processes, corporate governance, and other areas critical to an organization's operations.

Companies can promote their ISO certification after a successful audit from an accreditation body. 

Compliance with the ISO standard isn’t required by law, but for many industries, ISO compliance is considered a prerequisite to doing business with an organization. 

Sarbanes-Oxley (SOX) 

The Sarbanes-Oxley Act of 2002 established a set of financial regulations to regulate the internal controls of publicly funded companies.

Complying with the SOX regulations is mandatory for any public company listed on a US stock exchange.

Companies must prove their compliance through detailed reviews of their financial processes and ensure they are up-to-date with all the changes outlined in SOX.

It also requires attestations of financial accuracy from the CEO and CFO of public companies. 

Payment Card Industry (PCI)

PCI compliance is a security standard created to safeguard debit and credit card transaction information and provide proper security protocols for taking card payments.

Compliance with the PCI Data Security Standard (DSS) protects customer data from theft or misuse. It also enables organizations to follow industry best practices for payment transactions.

Compliance also protects businesses from potential lawsuits or financial losses due to data breaches.

General Data Protection Regulation (GDPR)

The GDPR (passed in 2016) is the newest and most extensive regulation affecting businesses in the European Union (EU) or those conducting business with EU-based entities or customers.

The GDPR is an EU-wide regulation that gives individuals control over their data and requires companies to safeguard it. This includes proper storage and transparency about use.

Noncompliance with GDPR can result in fines or other penalties.

Tax Compliance

Tax compliance ensures your organization follows all local, state, and federal regulations, such as reporting income and paying taxes punctually.

Maintaining accurate financial records and compliance practices is essential, as failure to do so may result in fines, penalties, and audits by tax authorities.

Accurate income and expense records help businesses comply with tax laws while running more efficiently.

Health Insurance Portability and Accountability Act (HIPAA)

The Health Insurance Portability and Accountability Act (HIPAA) of 1996 is a federal law that establishes national standards to protect the privacy, security, and integrity of individually identifiable personal health information.

It requires healthcare providers, insurers, and other information handlers to maintain records securely. HIPAA sets guidelines for using and disclosing health information, such as providing patients access to personal medical records.

Complying with HIPAA is essential for healthcare providers and organizations that handle protected health information (PHI), as failure to do so may result in investigations and penalties.

How does compliance reporting impact risk management?

In-depth compliance reporting is an important element of risk management, helping ensure organizations are following applicable standards and protecting the information of their customers, patients, or investors.

With a full record of these activities, organizations can quickly identify any risks or non-compliant activities in their operations. This helps them take proactive steps to address any issues before they become serious breaches of privacy or financial data 

A strong compliance reporting process also serves as an internal audit system to prevent misuse and unauthorized access to data.

Compliance audits of all types give the company fresh eyes on the data.

This may reduce or eliminate fraud and help companies streamline and strengthen their reporting and data-handling processes. 

5 steps for a thorough compliance reporting process

Compliance reporting requires a detailed and repeatable process to provide accurate records and information.

A dedicated chief compliance officer (CCO) or team can create an audit system of checks and balances that are tested continuously.

This ensures that data security protocols, access rights, and all other applicable laws and regulations are always followed. 

Having a repeatable process for compliance also allows organizations to maintain consistency across their policies and procedures, reducing the chance of errors or malicious intent from taking hold.

Use these steps to build your first compliance program or improve upon a current one:

1. Identify the need

Before creating a compliance process, define what you are tracking and its purpose. If compliance reporting is needed for an outside entity, define the parameters of reporting: 

• What needs to be tracked?
• Are there operational and technical requirements to consider?
• How do you prove compliance?
• How should the company report it?
• How often is reporting required?
• What documentation should be maintained on past reports?

Outlining these parameters will help you create a reporting program that runs smoothly without unduly burdening your teams. 

2. Name a program owner

To implement a compliance program successfully, designate a project owner who understands company goals and external regulations.

This individual will create procedures, review data, lead team members, and organize document records. They'll identify reporting needs and guidance for accurate, efficient compliance reporting.

With a project owner at the helm, information is meticulously tracked and documented.

3. Identify internal stakeholders

Many times, a compliance program relies on input from several internal individuals. Different areas of the business might have varying views on how to achieve compliance.

The project owner should coordinate with stakeholders from relevant departments to get their input on reporting requirements, including data collection and reporting formats.

For external reporting requirements, consult the receiving organization’s requirements for reporting completeness, including any person who must certify the data. 

4. Standardize your reporting process

Once you know the what and the who for your reporting, establish a workflow for gathering information, compiling it, fact-checking, and report-building.

Estimate the time for completion to avoid missed deadlines or last-minute report production that could introduce errors.

Consider automating compliance reporting wherever possible.

5. Establish reporting KPIs

Once you have a process up and running, applying metrics to your reporting will produce better results.

Establish key performance indicators (KPIs) against which you can measure the quality of your reporting and identify areas for improvement.

Monitor reports for errors, issues, or discrepancies in data accuracy—and any other trends that could indicate the need to refine your process or review your historical data.

Incorporating non-financial metrics into compliance reporting

Non-financial metrics offer valuable insights into areas that traditional financial reporting may overlook. 

For instance, ESG metrics provide stakeholders with information about an organization's environmental impact, social responsibility initiatives, and governance practices. 

These metrics can be instrumental in assessing the long-term sustainability and resilience of a business, which is increasingly important in today's socially and environmentally conscious landscape.

Key Considerations for Incorporating Non-Financial Metrics

Identify Relevant Metrics: Start by identifying the non-financial metrics that are most relevant to your organization's industry, stakeholders, and strategic objectives. 

This may include metrics related to carbon emissions, diversity and inclusion, employee satisfaction, community engagement, and ethical business practices, among others.

Align with Reporting Standards: Ensure that the non-financial metrics you incorporate align with recognized reporting frameworks and standards. Adhering to these standards enhances the credibility and comparability of your compliance reporting.

Integrate into Reporting Processes: Integrate non-financial metrics seamlessly into your existing compliance reporting processes. This may involve collecting data from various sources, such as internal systems, third-party providers, and industry benchmarks, and consolidating it into comprehensive reports.

Engage Stakeholders: Engage with internal and external stakeholders to understand their expectations and information needs regarding non-financial metrics. 

Communicate transparently about your organization's performance in these areas, highlighting both achievements and areas for improvement.

Conclusion: all about compliance reporting

Now you know all about compliance reporting.

How to do it. Why it's essential. And a process to get it done.

And if you're looking to make compliance even easier, you should consider Cube.

Cube makes reporting easy because it's a database in the cloud that integrates with the tools you're already using, like Excel and your ERP.

This means you can easily create, share, and duplicate reports. So you always have a record of compliance and you can make it easy to generate compliance reports.

Sound interesting? Click the image below to request a free demo.