AIC Says Accounting Standards Should Take Better Account Of Investor Needs

by Robin Pilgrim, LawAndTax-News.com, London

16 September 2008

Commenting last week, the UK-based Association of Investment Companies (AIC) argued that the quality of corporate Financial Reporting would be enhanced if global accounting standards, as set by the International Accounting Standards Board (IASB), took more account of investor needs and modern regulatory principles.

The AIC argued that company reports would then be less likely to contain confusing or unnecessary information and be more focussed on core investor concerns. To secure this outcome, the Association recommended that the International Accounting Standards Committee (IASC) Foundation should revise the governance framework under which the International Accounting Standards Board (IASB) works.

It proposed, in its response to the review of the IASC Foundation constitution, that:

• The investor viewpoint should be placed at the heart of the standards setting process;
• It should ensure that standards are set according to established principles of good regulation. That is, ensuring that they are: targeted on identified problems; proportionate in relation to the perceived problem, accountable to key stakeholders, and consistent; and,
• Evidence-based policy-making, including robust cost-benefit analysis, should be incorporated into the IASC and IASB’s work.

Daniel Godfrey, Director General of the Association of Investment Companies (AIC) explained that: “Delivering a global accounting system is desirable but not without its problems. ‘One-size-fits-all’ international accounting standards have contributed to longer financial statements and more complex disclosures. Unfortunately not all of this information is always relevant or clear and unnecessary information can make it difficult for investors to take an informed view of a company’s position."

“Our concern is that the current approach to accounting standards may lead investors to miss important information or to be confused or misled by irrelevant disclosures. Feedback from shareholders of investment companies is that they are increasingly concluding that company’s financial reports are becoming less useful for understanding the true position of a company. This is a very worrying trend."

He continued:

“The priority of IASC and IASB should be to encourage high quality disclosures for all companies, whatever their circumstances of sector. Making suitable adjustments to the IASB’s governance would ensure that it focuses on this outcome and develops the accounting standard regime accordingly. “The IASC is currently debating changes to the IASB’s constitution but its initial proposals simply overlay existing structures with new arrangements. They do not create a catalyst to enhance and revitalise the standards setting process. Only a shift away from ‘more of the same’ will ensure that this opportunity to enhance the standing of the IASB and international accounting standards, as well as increasing investor appetite for their adoption, will not be lost."

And concluded:

“If the UK’s investor, issuer and professional community get behind reforms of this nature there is real scope to alter the direction and quality of accounting standards for the better. This would have benefits across the board for companies in many sectors and I hope the UK community will engage with this debate to persuade the IASC to adopt the sort of framework we are putting forward.”

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