Clash over benefits of internet-based reporting
By Ian Fraser
The Herald
November 13th, 2006
THE replacement of quarterly and annual financial reporting with real-time, internet-based reporting would only serve to promote short-termism and would be of limited benefit to investors, accountancy institutes have warned.
They were responding to a heavily-promoted joint paper in which the chief executives of the Big Four accountancy firms, together with those of BDO and Grant Thornton, called for a radical shake-up of company reporting. One of the key recommendations of the report – Serving global capital markets and the global economy: a view from the CEOs of the international audit networks – is for financial reporting to move closer to continuous, real-time, internet-based reporting.
The report was signed off by Samuel DiPiazza of PricewaterhouseCoopers, Mike Rake of KPMG, David McDonnell of Grant Thornton, Frans Samyn of BDO, William Parrett of Deloitte, and James Turley of Ernst & Young.
They said: “Why, in a world where most public companies’ financial records are, or soon will be, in digitised form, should investors and other parties have to wait a full quarter to receive pertinent financial information? Technology allows far more frequent disclosures, even daily.”
However, James Barbour, director of accounting and auditing at the Institute of Chartered Accountants of Scotland, warned that such a move would promote short-term thinking from investors and corporate managements. He said: “Some people are already concerned that a move to quarterly reporting would promote shorttermism. But real-time reporting would be even more likely to promote it.”
Richard Mallett, technical development director at the Chartered Institute of Management Accountants (CIMA), said continuous real-time disclosure of corporate data “could be a step too far”. He added: “What investors and other stakeholders want is quality of information, not just sheer quantity. We already have a disclosure regime where if something material or price sensitive happens to a listed company, it should disclose this to the market straight away.
“We need analysis and insight, not just straight raw data. If data is going to be released to the markets hourly, it would become a major challenge for [companies’] management, as they would constantly need to put this into some sort of context.”
A spokesman for the Association of Chartered Certified Accountants (ACCA) said: “The case for more frequent reporting is not made convincingly. Precisely which stakeholders would benefit and what improvements in assurance would have to take place first are not made clear.”
The report – intended by its authors to spark off “a dialogue about the future of business reporting” – claimed a move to real-time reporting would, in fact, reduce short-termism.
Craig Anderson, head of KPMG in Scotland said: “Of course there are going to be issues such as reliability and global consistency, but it could be argued that accurate real time reporting is the holy grail of accounting. One of the main reasons investors look at past performance is to garner some sort of indication of what will happen in the future, so I’m sure most would welcome the ability to access relevant and reliable information in a timely way.”
The accountancy institutes also questioned the report’s suggestion that companies should be subjected to forensic audits – akin to a police probe – every three to five years. The authors argued that this would act as a major deterrent against fraud. But ICAS’s Barbour said: “I would not like to see this measure enforced. However, I would be happy for companies to be able to opt for it on a voluntary basis.
Another proposal in the report was that corporate reporting should move away from just using financial data and towards the use of a wider range of non-financial gauges of a company’s performance. This was warmly welcomed by Mallett, who said: “Non-financial disclosure is very dear to our hearts. We were strong supporters of the Operating and Financial Review before this was axed by Gordon Brown.”
The report also gave the thumbs-up to a global accounting standards system based on principles rather than rules, as favoured by International Accounting Standards Board chairman, Sir David Tweedie. According to the report’s authors, a principles-based approach would reduce the scope for fraud and provide more useful financial information, at the same time as helping protect accountancy firms from liabilities. Barbour said: “We strongly welcome the report’s support for principles-based standards.”
Overall, Mallett and Barbour both appeared to welcome the report. Barbour said: “It’s an interesting read and ahead of its time. They are looking at the future of financial reporting. I think they now need to get input from all relevant stakeholders, including investors, businesses, industry organisations like the CBI, and regulators.”
PDF 
Short URL: http://www.ianfraser.org/?p=50
Posted by admin
on Nov 13 2006. Filed under Article Library.
You can follow any responses to this entry through the RSS 2.0.
You can leave a response or trackback to this entry