Investors: Improve disclosure and comparability

INVESTORS took a the stand at the annual Meet the Experts conference with a list of “quick wins” – ways in which financial reporters can easily improve their performance in the eyes of those holding the purse strings.

Segmental performance, often used in bottom-up comparisons and valuation, would be easier to interpret if management were to disclosure information used in their assessments such as revenue and working capital, investors said.

They would like to see fewer exceptions and qualifications in cash flow reporting, including a summary of non-cash items such as pension contributions and finance leases.

Mergers and acquisitions, net debt reconciliation and pensions also received similar treatment, with investors calling for greater clarity and real efforts to make financial reports more “decision-useful”.

Better presentation would also make the documents more useful for investors and the quality of disclosure should always be kept in mind to “tell the story of the company”.

This means joining up the reporting where financial, operational and market risks join up, as well as consistently good disclosure, which avoids the temptation to lump items together with no or poor explanation.

On international financial reporting standards, investors warned they risk falling short on promised levels of consistency.

Variations such as jurisdictional interpretations and accounting choices are causing problems, as well as the principles-based right of preparer judgement being exploited to “get to the correct answer”.

The Greek debt crisis is a “classic example”, investors complained, pointing to different banks’ recognised losses – which ranged from 21% impairment in France to 51% in Germany – and national regulators’ differing responses.

They called for “much more detail in the accounting policy”, saying this would be “very helpful” and avoid boilerplate reporting in complex areas such as revenue recognition.

The alternative is a loss of confidence in financial statements and subsequent rising capital costs, accompanied by dwindling faith in IFRS and a negative impact on standard setters’ plans to converge the global standards with US GAAP, they warned.