RegulationCorporate GovernanceIt’s time for investors to get involved

It’s time for investors to get involved

The news from the International Corporate Governance Network that investors want a greater role in the setting of reporting standards deserves to be welcomed

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.

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