Corporation Information Dessimination An Essential Ingredient For Investment or Relationship

After the global financial turmoil, the corporate reporting model which has been the topic of a slow debate for a decade or more suddenly picks up the brisk momentum in the financial and investor market today.
That debate is now quickening as a number of factors have made themselves felt - among others, growing resistance to the complexity of financial reporting, the standard setters' closer focus on measurement and the proposed junction towards a single set of global accounting standards. Study and research surveys conducted in this regards offer insights that we believe should colour the debate about the scope of the reporting model necessary to meet the needs of both preparers and users in today's global capital markets and in the digitally enabled markets of the future. Further it will be core essential for investors confidence which has dented a lot due to bias or no meaningful reporting on subprime loans which has resulted in global financial debacle.
The current reporting model has been dominated for decades by financial information. While financial information is obviously and critically important, it provides only one part of the picture of overall business performance, and has a built-in bias towards recording the short-term results of companies, giving too little emphasis to their longer term value potential. This fact has been understood by both preparers and users of financial information, and most companies and investors now go to significant lengths to capture and analyse a broader information set. Yet in accountants' view, the existing model is less efficient than it could be.
The key question posed by the investors and the market arena is whether preparers and investors can address that inefficiency by developing a better corporate reporting framework which will improve communications, supplement and complement the financial reporting model, and provide a more consistent picture of the key building blocks of performance. Without being overly prescriptive and allowing for the specific needs of different industries and companies, the result should be capable of assisting the presentation of a cohesive data set which investor's value. Advances along these lines, driven by a careful and collaborative process of change, will go some way to address the concern that the current reporting model is in danger of becoming suboptimal.
A broader picture
While the evolution of financial reporting has entered a period of accelerated change, it continues to provide less than the full range of information sought by many investors. Discussions around the basic conceptual framework of accounting and reporting are currently in progress as part of the convergence process, and we should be encouraged by the commitment from all sides to embrace a more principles based model. While such moves will have a place in any development of the reporting model, there is significant potential to enhance the quality of companies' reporting by taking a more top-down, investor-centric approach to determining what information is reported externally. There is a further issue. Unless collaborative efforts are made to address the overall framework of information needed for corporate reporting, new areas of performance information - for example, around environmental impacts are likely to complicate an already complex picture by being bolted onto the existing financial model without due consideration of their strategic context.
Information - a time for manifestation
While financial information is obviously and critically important, it provides only one part of the picture of overall business performance, and has a built-in bias towards recording the short-term results of companies, giving too little emphasis to their longer-term value potential. There is significant potential to enhance the quality of companies' reporting by taking a more top-down, investor centric approach to determining what information is reported externally. Even the most technically able within the corporate and investor communities are finding it difficult to decipher the performance message of many financial reports. Further, the data required to address the technical complexities of the external reporting model may not be aligned with the information set being used to manage the business. Sophisticated users of the current corporate reporting model typically pay attention only to parts of the information conveyed by companies (compiled at great cost to those companies) and have little choice but to turn to non company sources to continue populating their analytic models.
Timely Addressing of the issue
I hope that propagation sessions in the forthcoming work shop by SAFE (South Asian Federation of Exchanges) on "VALUE CREATION THROUGH EFFECTIVE INVESTOR RELATION is a timely move in right direction to bring the investors' confidence back. The interactive sessions being addressed by the experience faculty on the subject will help to fuel the debate about how the reporting model can best be developed to get the right information set to the market in the most efficient manner.
It is my belief - and our observation among leading companies - that contextual narrative reporting helps to cut through the complexity and partial opacity of today's financial reporting. The 'win' for companies is to tell the company's story through management's eyes and using management's key performance indicators. A related win is to give a larger place to long-term value creation and reduce the focus on short-term financial gains. The win for investors is increased transparency, which permits them to make better-founded investment decisions. Achieving these co-ordinated wins depends very much on a new and sustained dialogue between companies and investors - a dialogue which standard setters, regulators and auditors can facilitate, but should not dominate. Ultimately, the two key forces in the capital markets companies and investors - need to reach consensus on the content of reporting.