Investors missing from global financial reform process

Investors should be placed at the heart of global financial and accounting standards, say ACCA (the Association of Chartered Certified Accountants) and Grant Thornton in a new report. However, the pair warns that investors’ views on shaping future standards are not being heard.

They also say that the piecemeal, fragmented way in which solutions to global economic uncertainty are proposed and the lack of focus on investors in the reform process prolong global economic fragility.

The report, ‘Putting investors at the heart of the financial system,’ is based on a series of roundtables for investors and investor representatives held in markets around the world. The report proposes seven steps to improve matters.

“Investors should be the primary focus for global financial and accounting standards, yet their voices are not being clearly heard,” says Sue Almond, Director of Technical at ACCA. “Investor opinion is not seen as a reference point against which to prioritise issues, nor does it drive an agenda for a continuous improvement in transparency and measures to meet the needs of shareholders.

“Investors don’t always speak with one voice and the investor community opinion isn’t necessarily homogenous, but this doesn’t mean all voices should be ignored.”

There are steps that can be taken to improve the position:

1.Setting an integrated reform agenda with investors’ needs at its heart. Investors would like to see new and improved accounting, auditing, and corporate governance standards developed in a more integrated manner. Reform proposals need to be based on a solid understanding of investors’ needs and priorities.

2.Continuing to develop globally consistent standards. Global consistency is essential for investors with global portfolios. Investors seek comparable information on financial statements and the application of audit and accounting standards.

3.Broadening the reports issued by companies. Integrated reporting is seen as representing an opportunity to fill some information gaps. Its closer alignment of risk management and performance could enhance investor confidence in management’s ability to perform in future.

4.Spreading high standards of corporate governance. The adoption and enforcement of corporate governance frameworks and codes is patchy globally. Wider adoption is seen as valuable by investors. In some regions, improved corporate governance was seen as the highest priority for improving investor confidence.

5.Expanding assurance provision and auditors’ reports. There is a desire for more information on the audit process and any issues identified, as well as information on the effectiveness of a company’s management and corporate governance. Investors would be willing to pay for greater assurance if it provided more value.

6.Enabling greater investor participation in setting the reform agenda and developing new standards. Investors are keen to raise their profiles with standard setters and regulators to ensure their needs are prioritised when reforms to the financial reporting system are debated.

7.Sharing opinions to encourage further progress. Investors are keen to share opinions and ideas among themselves, to encourage the wider adoption of best practice. They are also supportive of greater dialogue with the auditing profession to increase understanding of the challenges that each party faces.

“The investor round-table discussions organised by ACCA and Grant Thornton provide a springboard for further debate,” says Steve Maslin, a partner at Grant Thornton.

“Investors are willing to explore new approaches to developing financial reporting reforms. They support the concept of a more integrated process that emphasises the interrelated nature of accounting, reporting, auditing and corporate governance standards and regulations. They fully endorse the prioritising of investor needs, ensuring that any proposals for reform begin first with a sound analysis and understanding of the challenges investors face and their most urgent priorities for improvement.

“ACCA and Grant Thornton will explore means of facilitating further debate, and continue their efforts to bring the views and interests of investors to the forefront of that debate. Policymakers, standard setters and professional bodies alike must put investors’ needs at the heart of the agenda to enhance the accountancy profession.”