Sandy Peters, CFA, is head of financial reporting policy and serves as spokesperson for CFA Institute to key financial reporting standard setters including the IASB, FASB, and the US Securities and Exchange Commission. She holds the Certified Public Accountant (CPA) designation.
The implosion of Germany’s Wirecard has demonstrated that those parties – management, the audit committee and board, auditors, audit regulators, and corporate reporting regulators – investors compensate and rely upon to look after their capital investments failed them on multiple levels in the European Union’s (EU’s) largest economy.
We support the formation of an ISSB because its “first principles” are important to the investment community and would address the full range of sustainability factors (i.e., beyond climate change alone) through which investors assess business performance. Crucially, the ISSB also would establish a global sustainability disclosure baseline, bringing coherence to a fragmented ecosystem in which investors have been forced to be multilingual.
Perhaps most interesting about human capital relative to climate risk is that the financial statements are already supposed to provide some degree of information on human capital, such as compensation expense, but financial statements do not always do this. But now with the SEC involved, things may change.
The narrative that management and auditor assessment of internal controls of financial reporting is too expensive is a very common, but undemonstrated, narrative regarding virtually every accounting, disclosure, and audit reform. Investors view the benefits of ICFR audits as exceeding the costs.
Our key takeaway from the Consultation is that the UK government’s most significant instrument of reform is an empowered audit regulator, replacing the Financial Reporting Council (FRC) with the new Audit Reporting and Governance Authority (ARGA).
At a recent CFA Institute event, I hosted Erkki Liikanen, Chair of the IFRS Trustees, where he spoke about the efforts of the IFRS Foundation to establish a Sustainability Standards Board (the… READ MORE ›
CFA Institute supports the alignment among the leading sustainability and integrated reporting organizations—SASB, GRI, IIRC, CDSB and CDP— in advancing a sustainability standards discussion.
Our outreach and investor engagement tells us this accounting – a position we have had for over thirty years – is preferred by investors as it more prominently and transparently displays investment market risks. If an investor does not prefer this accounting, they can easily adjust to remove these unrealized gains or losses – having been fully informed by this more prominent presentation.
A plethora of non-GAAP and alternative performance measures will arise throughout 2020 to explain the effects of the COVID-19 pandemic. Investors need to critically evaluate the nature of the adjustments, what the resulting measure is meant to communicate, why the new or revised measure is being presented by management, and why the measure is a better or more meaningful measure. This information should be used as a jumping-off point for a conversation with management.
We encourage investors to “look under the hood” at the results — not for their predictive ability this quarter per se but rather for the ability of a company’s forward-looking statements to be evaluated and to make their own assessments of future prospects. Until there is a vaccine, company results and outlook will likely be filled with uncertainty, and these interim results can provide insight into the impact of the pandemic and how the business may respond in the future as the pandemic ebbs and flows over the next few years.
Due to the impact of COVID-19 on how companies are reporting during the second quarter/half year, investors likely need to perform their own going concern analysis.
As we noted in our introductory post on July 14, as the earnings season commences this week, we will undertake a series of posts over the next two weeks on issues we believe are important for… READ MORE ›
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