I have just noted the problems with auditing that have been reported in the financial press this morning. So has the FT. But as it, rather wisely, notes:
Rubbish auditors may not be the only problem. The FRC should worry about rubbish accounting standards too.
The discussion in the FT is about how Carillion almost halved in value as a result of a change in accounting standards in 2017. But is not the change that worries me, or the FT. It is the fact that fair value accounting is conceptually flawed and only designed to suit the needs of financial markets and no other stakeholders of a company that worries me.
Nothing less than a complete rewrite of the rules is required. The first Corporate Accountability Standard from the Corporate Accountability Network is launched on Friday.
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Hi Richard,
Could you provide some additional context to help us understand better why you make the statement, “….that fair value accounting is conceptually flawed and only designed to suit the needs of financial markets and no other stakeholders of a company that worries me……”
Many thanks,
Robin
Here
http://www.corporateaccountabilitynet.work/
Robin
I’ve read a fair number of accounts in my time including those of the company I work for. In most cases you either have to be a member of the Board or a very savvy investor/reader to read between the lines and know your way around the technical terms.
I think what Richard is advocating is much more plain English in the reports as well as a wider remit beyond the bottom line – an assessment of the benefits and dis-benefits of operations.
If you don’t measure it, you can’t manage it nor can you take it into account if you change things (make cuts and leave others to deal with the consequences) or (say) contribute to environmental pollution. Too many companies operate in a bubble created by investment finance.
Yes
But the rules have also to meet real needs
Including of the boards of companies – and most do not as now
My opinion of corporate governance these days is very low. We have huge problems with the quality of corporate Governance around the world.
What comes first – good board members or good accounts? There is a symbiotic relationship that seems to be hard to establish!
The two need each other.
Only a Courageous State could sort this out in the UK.