The UK-based Association of Investment Companies (AIC) said that new global accounting standards should pay more attention to core investor concerns or risk confusing the accounting community with unnecessary information.
“The investor viewpoint should be placed at the heart of the standards setting process,” said the AIC, a trade association that represents the interests of the investment trust industry. It added that accounting standards should be set according to established principles of good regulation, ensuring that they are targeted on identified problems. Standards also should be proportionate to the perceived problem; accountable to key stakeholders; and consistent, it said, strongly suggesting that the work of the International Accounting Standards Committee and International Accounting Standards Board are somewhat lacking in that area.
It urged that evidence-based policy-making, including cost-benefit analysis, is incorporated into the IASC and IASB work ahead.
“Delivering a global accounting system is desirable but not without its problems,” said Daniel Godfrey, director general of the AIC. “‘One-size-fits-all’ international accounting standards have contributed to longer financial statements and more complex disclosures. Unfortunately not all of this information is always relevant or clear and unnecessary information can make it difficult for investors to take an informed view of a company’s position.”
His group’s concern, he said, is that the current approach to accounting standards may lead investors to miss important information or be confused or misled by irrelevant disclosures. “Feedback from shareholders of investment companies is that they are increasingly concluding that company’s financial reports are becoming less useful for understanding the true position of a company,” according to Godfrey. “This is a very worrying trend.”
Godfrey stressed that IASC’s and IASB’s top priority should be encouraging high quality disclosure for all companies, whatever the circumstances of their sector. Making suitable adjustments to IASB governance would ensure that it focus on that outcome and develop an accounting standard regime accordingly.
“The IASC is currently debating changes the IASB’s constitution but its initial proposals simply overlay existing structures with new arrangements,” he said. “They do not create a catalyst to enhance and revitalize the standards setting process. Only a shift away from ‘more of the same’ will ensure that this opportunity to enhance the standing of the IASB and international accounting standards, as well as increasing investor appetite for their adoption, will not be lost.”