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14 Feb 2013 12:49pm

Corporate reporting needs to be “fit for purpose”

KPMG has called for corporate reporting to be “fit for purpose” for a post-crisis environment

As the effectiveness of reporting continues to be scrutinised following the financial crash, the Big Four firm has released a report to guage the influence on its future direction.

The report, The future of corporate reporting: towards a common vision tested the premise that fundamental reforms were needed by interviewing ten international leaders in the field including the chairman of the International Accounting Standards Board (IASB), the CEO of the Financial Reporting Council (FRC) and experts from UBS and HSBC.

KPMG’s global chairman Michael Andrew, said in the report, “If there is one point of consensus, it is that corporate reporting definitely needs to move on. It has to evolve if it is to be fit for purpose in a rapidly changing world.”

Andrew added that good corporate reporting has an important role to play “in helping to restore the trust that has been lost.”

Hans Hoogervorst, chairman of the IASB, said the pressure on the organisation is “quite heavy”.

“It is important not to delegate things to the audit committee that are the responsibility of the board”

Stephen Haddrill

“The financial crisis was very much caused by faulty economic standards, faulty prudential standards or the abuse of standards and the gaming of capital requirements,” he said. “Clearly the market economy can only function well if it has a very solid set of standards and rules, and financial reporting is a very important part of that.”

“In the case of accounting standards for leasing, it is very important to give investors a better view of the off-balance-sheet liabilities of companies, but there is “huge resistance” to this. So it’s going to be a very tough battle to get it done, and during the process the pressure exerted on the IASB is quite heavy.”

Hoogervorst added there is much work to be done to introduce more rigor to corporate accounts, as “we don’t have very clear principles on which particular measurement method to use, and this will be one of our main challenges in the future”.

Stephen Haddrill, CEO of the UK’s FRC said the “biggest danger in relations between a company and its shareholders is if the company has a habit of surprising them with bad news.”

“The banking sector is a bit different, because it fundamentally depends on public confidence," he added. "If a bank is in a state of crisis, it has to be more careful how the situation is managed. Nobody wants to bring about the failure of a bank, but equally, everybody wants investors to be well informed.”

In recent years, the role of audit committees in various industries has expanded into risk. However, Hadrill believes it is “important not to delegate things to the audit committee that are the responsibility of the board”.

“We expect the board will attest to the report and accounts as a whole being fair, balanced and understandable. Now, in taking on that responsibility on the advice of the audit committee, it is important we don’t undermine the fundamental duty of the board by leaving the impression that board committees can do the job for the board; they can’t.”

Joachim Schindler, global head of audit at KPMG, said that auditors would be willing to expand the content of their audit reports, if the agreed parameters were right. “As long as we have clear lines of responsibility, we are in favour of expanding the auditor’s report," he added. 

"We have to do this. The issue is defining what more we should report.”

Neri Bukspan, executive managing director at Standard & Poor’s argues that “nobody is in the drivers seat” for reform.

“For reform to succeed, there have got to be multiple parties brought together. This is a major undertaking. It will change how the capital markets report. So that’s not easy. Hence it needs to be painstakingly managed and executed.”

The full report can be downloaded here.

Raymond Doherty

 

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