Reform in corporate financial reporting reporting should focus more on overall transparency improvements rather than establishing a broad framework for disclosure, according to a CFA Institute report.
The report, based on surveys of 15,000 CFA Institute members in 2012, as well as similar surveys in 2002 and 2007, showed investors want improved financial statement presentation, more detailed information and better disclosure of “troublesome items,” such as off-balance-sheet items and estimates, according to the report.
According to a summary of the results provided by the CFA Institute, consideration of economic events, particularly the 2008-2009 financial crisis, has been “missing from the discourse on disclosure reform.” Investors' perceptions on financial reporting were “profoundly affected” by what they experienced during and after the financial crisis, according to the summary. “Investors believe the … crisis, and the ensuing five years of economic uneasiness — plainly revealed the insufficiencies of disclosures, especially those of financial institutions.”
Mohini Singh, director of the CFA Institute's financial reporting policy group and a co-author of the report, said reporting-reform discussions by the Financial Accounting Standards Board and its European counterpart, the European Financial Reporting Advisory Group, over the past two years have focused more on the requests of statement preparers who say there's too much clutter in financial reports.
Investors think otherwise, she said.
“That's not what we're hearing from investors,” Ms. Singh said. FASB and EFRAG “aren't dealing with the critical issues from the financial crisis. For investors, it's quality, not quantity.”
Investors are able to glean more from more information in financial reports because of improvements in technology, Ms. Singh said. “Quantity is not the concern here.”
Ms. Singh said investors haven't had much say with FASB and EFRAG. “Not that (the two organizations) hadn't tried,” she said. “But the discussions have been at such an abstract level, there wasn't a willingness for investors to get involved. (Investors would)ask, 'What does this all mean for me?' ”