20 May 2016

Market Integrity Insights: Novel proposals on corporate reporting reforms - Will investor needs be met?

CFA Institute’s Director, Vincent Papa, published an article including interviews to Hilde Blomme, FEE Deputy CEO and Mark Vaessen, Chair of the FEE Corporate Reporting Policy Group that highlight key proposals from the FEE’s cogito paper The Future of Corporate Reporting.

Mr Papa has 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 GAAP and 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 FEE issued a thought-provoking discussion paper on the future of corporate reporting that would benefit from investor input.

Full article

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