Finance: When numbers aren't enough

WHEN THE Accounting Standards Board issued its latest proposals for improving the quality of corporate reporting there were the inevitable howls of protest from certain sectors of the financial community.

The board and its chairman Sir David Tweedie are well used to this. Since the body was created in 1990 to crack down on the accounting abuses seen as being a significant contributory factor to the spate of corporate collapses in the late 1980s, Sir David has revelled in his characterisation as "the most hated accountant in Britain".

And the board was well-prepared for reaction to the plans announced last week for increasing the amount of information companies disclose about their pension schemes. The National Association of Pension Funds, for example, said the volatility that would result from the proposed changes could deter companies from offering employees traditional pensions based on their final salaries. The Hundred Group, which represents the finance directors of the largest UK companies, feared sharp movements in world markets - as happened last autumn - could cause significant fluctuations in company accounts.

Such complaints no doubt find sympathy with those believe the board has lately moved into areas that are too esoteric for most people to worry about. Though Sir David sees the pensions proposal, contained in a draft document known as FRED20, as being of a piece with his overall aim of forcing companies to report all relevant information and leave it to the analysts, shareholders and other users of accounts to interpret what it means.

But it will not make a lot of difference. Mark Duke, a partner with Towers Perrin, the firm of human resources consultants and actuaries, says: "The way you measure things doesn't affect their value." This does not mean that all is well with the established approach to financial reporting.

The Institute of Chartered Accountants has made attempts through fairly radical reports to encourage organisations to think about improving the format and expanding the scope of such documents, while the largest accounting firms are grappling with how to make their auditing services something clients regard as more valuable than a mere fulfilment of a regulatory requirement.

Against this background, PricewaterhouseCoopers has published a major review of what it calls "value reporting". David Phillips, the European leader of a process trademarked as ValueReporting, and his US counterpart Harold Kahn say the business world is undergoing changes that are putting managers under pressure to meet "the demands of the investment community about value creation".

This is partly a result of the ongoing craze for "shareholder value", a concept designed to remind executives of their responsibility to produce a healthy return on investment but which is often hijacked in the interests of producing short-term increases in profitability. But it also reflects the globalisation of capital markets and the desire for much greater transparency in company information.

The firm published a discussion paper on "the emerging art of reporting in the future" in 1997 and has spent the past two years testing the ideas through research and discussions with companies. Its findings are contained in the new document (appropriately available as a CD-Rom as well as a book) called ValueReporting Forecast: 2000.

One of the key discoveries is that there is a "need for improved disclosure of future-oriented information in reports". Since in some cases the value of a company pension fund is greater than the market value of the company itself, pension costs clearly fall into this category.

But the PwC report also points to the importance of non-financial information. It is not, of course, the first to realise this. The balanced scorecard, which was much discussed a few years ago, is based on companies putting extra emphasis on such "soft" measures as employee loyalty and customer satisfaction, while the more recent stakeholder concept revolves around addressing interest groups other than shareholders.

But with Internet companies apparently being valued on the basis of their potential rather than performance, there is an added impetus to provide investors and analysts with the information needed to accurately assess future value. The illustrations of best practice which end the report indicate some companies are already experimenting by including comments about such areas as customer service, staff attitudes and brand development.

The PwC team sees clear benefits for those prepared to go down this road, providing better understanding of their activities and hence better access to funds. But taking this step requires a shift in mind set from traditional results reporting which is short-term-oriented, mixes revenue and investment expenditure and ignores soft areas of activity on the basis that they are "not understood or are too difficult to measure".

Now, doesn't that sound like something Sir David Tweedie might say?

Start your day with The Independent, sign up for daily news emails
Life and Style
food + drink
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
News
UK Border Control
i100
Arts and Entertainment
TV
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Guru Careers: Inbound Sales Executive

£18k + Uncapped Commission (£25k Y1 OTE): Guru Careers: We are seeking an Inbo...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn