Study Will Consider How To Motivate Better Reporting

What does it take to motivate good behavior at all levels of the financial reporting supply chain—from clerks and administrators who gather data, up to the corporate boardroom, and outside the company to its external advisers? That’s a question the International Federation of Accountants hopes to answer with a global study it plans to launch in the coming months.

Standard setters can tinker and adjust accounting rules all they like, but it won’t result in improved financial reporting unless the people along the reporting supply chain are properly motivated to behave with the public interest foremost, said Graham Ward, IFAC president.

That echoes the sentiment of a study on off-balance sheet arrangements that was released by the Securities and Exchange Commission in June. That report, which included recommendations for improving financial reporting transparency, noted that it was easy to blame the standards—and the standard setters—for vulnerabilities in accounting policies. Instead, the SEC’s document repeatedly urged all participants in the financial reporting process to do their part to reduce complexity in financial reporting.

Ward

“Everyone along the financial reporting supply chain should put the public interest above any other consideration,” said Ward at the IFAC. “We want to study the responsibilities of different people all along the financial reporting process and what incentives they have to do a good job.”

In a 2003 study, Rebuilding Public Confidence in Financial Reporting: An International Perspective, IFAC identified the various players impacting the financial reporting process and found that a failure to recognize the primacy

of integrity had been a major contributor to recent financial scandals. “Everyone in the supply chain wasn’t acting truly with the public interest in mind,” Ward said. The current initiative seeks to explore incentives more closely.

IFAC plans to appoint an independent chair to lead the study, which will examine issues including corporate management and governance, regulatory developments, auditor independence and rotation, and the expectations around the auditor’s responsibility for the detection of fraud. The intention is to offer practical suggestions on what the global accountancy profession can do to improve the reporting process and where it can enlist the help of other professions to create change.

Ward likened financial reporting to an automotive production line, with different people and processes along the way resulting in the finished product. “We want to look at how we can build in quality from the very beginning of the production line,” he said.

IFAC represents 160 different professional accounting groups in 119 countries, taking in 2.5 million accountants in various fields.

FASAC Seeks Input On Financial Reporting Priorities Though Survey

Here’s your chance to tell standard setters where they should focus their attention in the coming year. The Financial Accounting Standards Advisory Council has issued its annual survey for 2005 to get input on a variety of financial reporting issues.

FASAC, the overseer of the Financial Accounting Standards Board, seeks views on FASB’s current priorities, future financial reporting issues, simplification, implementation guidance and differential accounting standards for certain entities.

Survey responses help FASAC and FASB determine priorities for standard setting activities going forward. The survey is available on the FASB website, and responses are due Aug. 31.