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?

Arts and Entertainment
Judi Dench appeared at the Hay Festival to perform excerpts from Shakespearean plays
tvJudi Dench and Hugh Bonneville join Benedict Cumberbatch in BBC Shakespeare adaptations
Arts and Entertainment
Exhibition at the Centre Pompidou in Metz - 23 May 2012
Is this how Mario Balotelli will cruise into Liverpool?
Ronahi Serhat, a PKK fighter, in the Qandil Mountains in Iraqi Kurdistan
Arts and Entertainment
Alfred Molina, left, and John Lithgow in a scene from 'Love Is Strange'
ebooksAn evocation of the conflict through the eyes of those who lived through it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Soft Developer (4.0, C#, Windows Services, Sockets, LINQ, WCF)

£65000 - £75000 per annum: Harrington Starr: .NET Developer (4.0, C#, Windows ...

C# Developer -Winforms, VB6 - Trading Systems - Woking

£1 per annum: Harrington Starr: A leading financial software house with its He...

C #Programmer (.Net 4.0/4.5/ C#) -Hertfordshire-Finance

£45000 - £50000 per annum: Harrington Starr: C #Developer (.Net 4.0/4.5/ C#, A...

JQuery Developer JQuery, UI, Tomcat, Java - Woking

£1 per annum: Harrington Starr: JQuery Developer JQuery, UI, Tomcat, Java - Tr...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home