City Investors Call For Better Financial Disclosure

by Robin Pilgrim, LawAndTax-News.com, London

02 October 2007

Some of the City of London's leading investors are calling for greater consistency and clarity in financial reporting, according to a new report published on Monday by KPMG.

KPMG's survey, which included responses from leading UK institutions managing total global equity funds of $2.7 trillion, found that many investors now believe accounts are increasingly becoming regulatory filings rather than documents offering real insight into the ongoing performance of a business.

The report found that: over three quarters of investors (78%) would like more information on what assumptions financial statements are based on; 74% of investors would like more clarification on exceptionals; nearly six in ten respondents (58%) would welcome a clearer divisional breakdown highlighting exactly where companies make their money; and 48% would like more information on business risks and opportunities.

KPMG revealed that the survey examined areas of reporting such as financial statements, emerging markets, accounting procedures, ethical investment and views on London’s position as a financial capital, and was conducted primarily to examine how UK published financial statements can be further improved, to better serve the needs of leading investors.

However, while respondents expressed concern about clarity and consistency of information, they generally felt that the amount of information reported was acceptable, and favoured the UK's 'principles-based' approach to reporting over the US 'rules-based' approach. The respondents were in general agreement that any deviation in the UK towards a more rules-based system would diminish the strength of London as a financial centre. Investors identified three particular areas that could jeopardise that strength:(i) implementation of rules akin to Sarbanes Oxley; (ii) any efforts to scrap the FSA light-touch approach; and (iii) any changes to the overall burden of regulatory rules.

One key area where KPMG’s research highlighted the need for more comprehensive information was on on companies from emerging markets. An overwhelming 90% of investors highlighted a need for more information on company strategy and details of the market in which the business operates. In addition, 62% of respondents expressed a need for more opinion on companies reporting from emerging markets.

KPMG Chairman, John Griffith-Jones commented: “Investors have raised some important concerns. With financial statements increasing in length and complexity, there is clearly a need to ensure that there is consistency and transparency in the way that information is presented. If that is not happening at the moment, then the financial community needs to look collectively at ways of improving it.”

Richard Bennison, Head of Audit at KPMG, added: “We are keen to see more dialogue between all parts of the financial community so that accounts meet different stakeholders’ needs effectively. Getting the balance right between meeting regulatory requirements and providing accessible and useful insight is clearly key. I hope that the principles-based approach on which UK accounting is founded will continue to be strongly embedded – otherwise there is the danger that we will see financial statements becoming more and more complex and opaque to the common user.”

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