Views on the integrity of global capital markets
13 May 2016

Novel Proposals on Corporate Reporting Reforms: Will Investor Needs Be Met?

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Having worked in the financial reporting policy field for nearly nine years, I’ve witnessed two layers of corporate reporting reform occurring in parallel.

One layer has focused largely on changes to specific accounting standards. The highlights of that layer have been the US Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) convergence projects — leases, revenue recognition, financial instruments — as well as the recent focus on disclosure effectiveness.

Then there is a second, big-picture aspect to corporate reporting reforms, in which the fundamental question has been about how to ensure that corporate reporting facilitates a focus by key stakeholders, including investors, on the long-term value creation of reporting companies. A main argument by proponents of corporate reporting reform is the observation that the accounting balance sheets of most corporations do not reflect their intangible assets. These assets are a key part of the “value creation” equation. In tandem, there is an increasing number of investors who are incorporating “nonfinancial,” such as sustainability information (i.e., ESG), into their investment analysis.

Any debate on the future of corporate reporting cannot overlook the advances in technology, the proliferation of data and information sources, and enhanced predictive analytics that presents opportunities for disruption in how companies are analyzed. Consequently, there is a real question of whether the existing corporate reporting model is anachronistic and whether there is a risk of it becoming obsolete in the near future if it does not adequately meet the needs of its varied stakeholders, especially the needs of investors. That being said, every existential threat presents an opportunity for refinement and reinvention, and there is an emerging space for blue-sky thinking on what the future of corporate reporting should look like. In this respect and in the spirit of innovation, the Federation of European Accountants (FEE) issued a thought-provoking discussion paper on the future of corporate reporting that would benefit from investor input.

The following interviews with Hilde Blomme, deputy CEO of FEE, and Mark Vaessen, chair of corporate reporting policy at FEE, highlight key points of their discussion paper proposals. In the first video, they discuss the objectives and main elements including the novel CORE/MORE model.

 

In the second video, they talk about some of the practical implications of the proposed approach and expected input from investors.

 

Investors, financial analysts, and other capital market participants may have questions or views on whether the proposed FEE corporate reporting reform framework is a sensible way forward and whether it likely serves the analytical needs of investors. They may also have independent or unrelated ideas on what needs to occur with corporate reporting at a big-picture level. To share such views, respond to the FEE’s discussion paper, by email (pantelis.pavlou@fee.be) before 30 June, 2016.


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Image Credit: ©iStockphoto.com/shironosov

About the Author(s)
Vincent Papa, PhD, CPA, FSA, CFA

Vincent Papa, PhD, CPA, FSA Credential, CFA, is director of financial reporting policy at CFA Institute. He is responsible for representing the interests of CFA Institute on financial reporting and on wider corporate reporting developments to major accounting standard setting bodies, enhanced reporting initiatives, and key stakeholders. He is a member of ESMA’s consultative working group for the Corporate Reporting Standing Committee, EFRAG user panel, and a former member of the IFRS Advisory Council, Capital Markets Advisory Committee, and Financial Stability Board Enhanced Disclosure Task Force. Prior to joining CFA Institute, he served in investment analysis, management consulting, and auditing roles.

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