Current financial reporting practices do not impede long-term investment

  • ICAEW (Institute of Chartered Accountants in England and Wales) (lt green) Image

09 May 2016

The Institute of Chartered Accountants in England and Wales (ICAEW) has published ‘Long-Term Investment and Accounting: Overcoming Short-Term Bias’.

The report looks at the evidence on whether financial reporting encourages short-termism and asks whether it would be possible for financial reporting to provide better information on long-term performance. In particular, it looks at five areas in which current financial reporting has been accused of encouraging short-termism:

  • use of fair values;
  • no information on long-term performance;
  • excessive frequency of reporting;
  • writing off of spending on long-term assets; and
  • no information on long-run effects on the natural world or on society as a whole.

The paper concludes that current evidence does not suggest that current financial reporting practices impedes long-term investment, except in relation to the frequency of reporting where there can be a trade-off between the benefits of transparency and the costs of ensuring that investors’ expectations of performance are met at the frequent intervals required.

The full research paper is available from the ICAEW website.

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