By Frank Byrt
In the wake of the international financial crisis, accounting professionals are taking a close look at corporate reporting and calling for reform.
"The downturn that has affected nearly every part of the global economy has called into question some basic tenets of our economic system", writes KPMG Global Chairman Michael Andrew in the foreword of his firm's recently released report The Future of Corporate Reporting: Towards a Common Vision. "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."
As in the past, it has taken a crisis to prompt the call for change. The Great Depression triggered a transformation of corporate reporting in the 1930s, and now, the Great Recession of 2008-2009 is doing the same.
The report, which is based on in-depth interviews with ten top accounting industry executives and regulators, was released by KPMG February 7. A number of common themes surfaced from the interviews, including the need to:
- Make corporate reports more forward-looking.
- Achieve a balance between too much information and too little.
- Provide more useful real-time information and deal with "big data."
- Determine the proper role of narrative reporting in the "front end."
- Determine whether the notion of "integrated reporting" could be the "next big thing."
- Determine if there is a need for more detailed reporting from the auditor and/or for the auditor to give assurance over a wider range of risks.
But these themes can be ambiguous. For example, KPMG Global Head of Audit Joachim Schindler said",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 favor of expanding the auditor's report. We have to do this. The issue is defining what more we should report."
Another factor driving change, but also adding to the challenges, is a move toward mutually agreed-upon international reporting standards. Recent changes in International Financial Reporting Standards (IFRS) have made a start toward a global language for financial statements, but that is just a start to what is necessary, according to the report.
"The financial crisis has made the need for global harmonization and integrated reporting more urgent. New technology will, in theory, make it easier to analyze corporate reports. But in practice, it will require a concerted effort of preparers, investors, auditors, standard-setters and regulators to move corporate reporting in the desired direction", the report says.
KPMG Global IFRS Leader Mark Vaessen warns that despite the consensus for change and the availability of new technologies to help analyze corporate reports, it will not be easy to make change happen. "In practice, it will require a concerted effort by preparers, investors, auditors, standard-setters, and regulators to move corporate reporting in the desired direction."