Newsletters & eNews
Aug 20, 2010
In This Issue:
News on Business Reporting
- Through the Lens of the Investor: IFAC Business Reporting Series Article Three
- A4S and GRI Announce Formation of the IIRC
- Study Investigates Barriers to Development of Corporate Reporting
- Climate Disclosure Standards Board: Reporting Framework Update
- IFAC-A4S Community Website Coming Soon
- Upcoming ISAR Session to Address Framework for Corporate Reporting
- GRI Recruits Director to Lead Development of Reporting Framework
- Links to Relevant Resources from IFAC Business Reporting Series
1) Through the Lens of the Investor: IFAC Business Reporting Series Article Three
IFAC has released the third article in its series on business reporting, which features recommendations from key business leaders from around the world on improving corporate governance, business reporting, and auditing in the aftermath of the financial crisis.
The article, Business Reporting Through the Lens of the Investor, includes interviews with six specialists who have close ties to the investment community. From their different perspectives, the interviewees provide their insights into a number of significant business reporting issues, such as complexity, information overload, fair value accounting, operational performance, and real-time reporting.
The investors interviewed agreed that one of the challenges of preparing high-quality financial statements is that they must serve the needs of a broad range of stakeholders. Matthew Waldron, director of the Financial Reporting Policy Group at US-based CFA Institute, quotes the first principle in his institute's Comprehensive Business Reporting Model (2007): "The primary financial statements must provide the information needed by equity investors, creditors, and other suppliers of risk capital."
According to those interviewed, directors and management may not realize how critically important their financial reports are to investor confidence and decision making, and the overall stability and growth of their business. "Senior executives and board members need to recognize that, essentially, they are working for the benefit of the shareowners," according to James Allen, director of capital markets policy for CFA Institute. Hong-Kong-based investor and shareholder activist David Webb adds, "It is the job of directors to tell the truth, to provide the information that investors need to make informed decisions." Many directors realize that "the largest part of their company's intangible value is the confidence investors have in the management team," says Carlos Madrazo, head of investor relations at Mexico-based Grupo Televisa.
According to interviewees, complexity in business reporting poses a challenge. Ms. Branwhite says, "Things like off-balance sheet accounting, warehousing of financial instruments, mark-to-market valuation, and all those other issues that made financial information so opaque, have increased the complexity of financial accounts such that it has become difficult for many investors to trace the financial performance of a business."
In regard to information overload, Michael McKersie, assistant director, capital markets at the Association of British Insurers says, "Investors don't necessarily think bulkiness is an issue as long as can they can find what they need."
In addition, readers are encouraged to respond to the recommendations of the interviewees by completing a brief survey, also found on this site. Based on the recommendations and reader input, IFAC plans to develop an overall concluding article and a follow-up action plan, and will consider producing an International Good Practice Guidance. The recommendations will also be used as input into the newly formed International Integrated Reporting Committee (IIRC) (see below "A4S and GRI Announce Formation of the IIRC").
IFAC is issuing a total of five articles, with approximately one article published each month. We invite our member bodies to publish or post the articles on their websites and in their journals. For more information about IFAC's business reporting project, please contact Vincent Tophoff at firstname.lastname@example.org. See also "Links to Relevant Resources from IFAC Business Reporting Series."
2) A4S and GRI Announce Formation of the IIRC
The Prince's Accounting for Sustainability (A4S) Project and the Global Reporting Initiative (GRI) recently announced the formation of the International Integrated Reporting Committee (IIRC). The IIRC brings together a cross section of representatives from the corporate, accounting, securities, regulatory, NGO, and standard-setting sectors. The committee is comprised of a Steering Committee and a Working Group; the latter will be co-chaired by IFAC CEO Ian Ball.
The objective of the IIRC is to create a globally accepted framework for accounting for sustainability that brings together financial, environmental, social, and governance information in a clear, concise, consistent, and comparable format. The intention is to help with the development of more comprehensive and comprehensible information about an organization's total performance, prospective as well as retrospective, to meet the needs of the emerging, more sustainable, global economic model.
For further information regarding the IIRC, please see www.integratedreporting.org.
3) Study Investigates Barriers to Development of Corporate Reporting
The Chartered Institute of Management Accountants (CIMA), PricewaterhouseCoopers, and Tomorrow's Company have launched a global study to explore what changes are needed to make corporate reporting fit for purpose for the future. The study will seek to identify which aspects of the system are preventing or supporting the effective development of corporate reporting.
For the first phase of the study, a call for evidence has been issued. The call for evidence asks three fundamental questions:
- What are the weaknesses and strengths in the current system?
- What are the barriers obstructing the evolution of corporate reporting?
- What solutions would rectify these weaknesses?
The input that is received will be enriched by a series of dialogues with stakeholders in small discussion groups, to be held in New York, London, Paris, Brussels, and Asia. The intention is to produce a preliminary report by the end of the year to coincide with the work of the International Integrated Reporting Committee, which intends to communicate with the G-20 regarding support for a new reporting model.
The call for evidence is available online. If you would like to give evidence, please do so at email@example.com.
4) Climate Disclosure Standards Board: Reporting Framework Update
In May 2009, the Climate Disclosure Standards Board (CDSB), a consortium of business and environmental organizations, launched the Reporting Framework for comment. The Reporting Framework is to be used by companies for climate change-related disclosure in compiling their mainstream reports. The board is currently working on the first edition of the Reporting Framework, which focuses on how reporting can be made more useful for investors' decision making and reflects best practices suitable for the disclosure of climate change-related information internationally in mainstream reports.
CDSB will release the Reporting Framework, Edition 1, which will incorporate and respond to feedback received on CDSB's 2009 consultation document, in September 2010. To learn more about CDSB, see www.cdsb-global.org.
5) IFAC-A4S Community Website Coming Soon
Together, IFAC and The Prince's Accounting for Sustainability (A4S) Project are creating a community website to facilitate the exchange of ideas and sharing of good practice, among IFAC member bodies and others, on how environmental and social performance can be better connected with strategy, operations, and financial performance. The site will feature various discussion groups on embedding sustainability issues into decision making and improving sustainability reporting. Set to launch in September 2010, the new website will welcome guest bloggers who are experts in their fields.
Stay tuned for more news about this exciting initiative. For more information and for those wishing to be actively involved in the development of this site, please contact firstname.lastname@example.org.
6) Upcoming ISAR Session to Address Framework for Corporate Reporting
The 27th session of the United Nations Conference on Trade and Development (UNCTAD) Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) will take place October 13-15, 2010, at the Palais des Nations in Geneva. The main agenda item for the 27th session of ISAR will deal with a capacity-building framework for high-quality corporate reporting. The session also includes agenda items on corporate governance disclosure and environmental accounting and reporting (with a specific focus on climate change-related disclosures). In addition, time will be allotted for updates by international and regional organizations that are engaged in the areas of accounting and corporate reporting.
Prior to the ISAR session, IFAC and UNCTAD will co-host the conference, Corporate Governance in the Wake of the Financial Crisis: Linking Governance, Strategy, and Sustainability, at the same location on October 12, 2010. To attend the IFAC-UNCTAD conference, please see UNCTAD's online registration form.
7) GRI Recruits Director to Lead Development of Reporting Framework
The Global Reporting Initiative (GRI) is recruiting a Director to lead the development of the Reporting Framework. The ideal candidate will possess knowledge of reporting (disclosure of environmental, social and governance (ESG) information, integrated reporting, and financial reporting), standard setting, and assurance.
8) Links to Relevant Resources from IFAC Business Reporting Series
The following links are taken from the interviews with 25 key business leaders from around the world, which form the basis of the IFAC business reporting articles. See above "Through the Lens of the Investor: IFAC Business Reporting Series Article Three."
A. From Working for the Benefit of the Investor, interviews with James Allen and Matthew Waldron of CFA institute: A Comprehensive Business Reporting Model: Financial Reporting for Investors (CFA Institute Centre for Financial Market Integrity, 2007). The model proposes 12 principles to ensure that financial statements are relevant, clear, accurate, understandable, and comprehensive.
B. From Governance, Corporate Responsibility, and Sustainability Essential to Protect Investment Value, interview with Guy Jubb of UK‐based Standard Life Investments: In 2009, a shareowner-led working group published enhanced disclosure guidelines to assist directors, audit committees, and investors.
Also from this interview, the paper Making Corporate Reports Readable: Time to Cut to the Chase (Institute of Chartered Accountants of Scotland, February 2010) contains a pro forma short form report-less than 30 pages-with key information of interest to investors using a hypothetical universal bank as the underlying business.
C. From Governance is King! interview with Mervyn King, chairman of the King Committee on Corporate Governance in South Africa: The King Code of Governance for South Africa (King III), which came into effect March 1, 2010, recommends integration of economic, social, and environmental reporting, recording how a company's business has impacted positively and negatively on the community.
D. From Quest for True Performance Information, interview with Tanya Branwhite of Macquarie Securities: The Corporate Reporting Users' Forum (CRUF) was formed in 2005 as a discussion forum with the aim of helping its participants in their approach to the debate on current and future corporate reporting requirements.
To comment or inquire about any of the items mentioned above or for questions about the PAIB Committee, please contact email@example.com.
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