It’s time for investors to get involved

Investors rely on accounting standards and the adherence to them more than anyone. If reporting rules are flabby, it is the investors who will fork out to pay the bills that result.

It’s one thing though, recognizing the importance of accounting standards; it’s another sitting in day-long meetings discussing the precise meaning of goodwill.

It is important that investors get involved, not least because the devising of standards so often appears to be heavily influenced by academics in particular. Recent issues over international financial reporting standards, and fair value in particular, underline the idea that standards should be more than just beautiful ideas.

The investment community does not have the greatest record, however, on engagement with the industry. The introduction of IFRS highlighted that the City was not as well-briefed as it should be on accounting rules. Last year, the FRC’s call to investors to shop companies where they thought there were accounting problems drew a ‘thanks, but no thanks,’ response. And investors are rarely as engaged on corporate governance concerns relating to audit as they could be.

Since the advent of debates on competition and choice in the audit market, some investor groups have been forthright in offering radical suggestions to restructure the accounting industry. Investors should use their newly discovered energy and interest to discuss the detail of accounting and accounting standards. If they don’t, they will only have themselves to blame if they end up footing the bill.