As reported in our earlier story on the precursor Rio+20 Corporate Sustainability Forum, the final outcome document is quite different from the original 'zero draft' proposals which called for a "global policy framework" effectively requiring sustainability reporting.

Instead, the final outcome document reads as follows (with only slight wording changes from the pre-meeting final draft text):

We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry, interested governments and relevant stakeholders with the support of the United Nations system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account experiences from already existing frameworks and paying particular attention to the needs of developing countries, including for capacity-building.

Prior to the release of the outcome document, the governments of Brazil, Denmark, France and South Africa announced at the Rio+20 conference the formation of a group of "friends of paragraph 47".  The group's vision is that corporate transparency and accountability are key elements to enhancing the private sector’s contribution to sustainable development and that making sustainability reporting standard practice among companies will contribute to monitor the impacts on and the contribution to sustainable development by the corporate sector.

Brazil, Denmark, France and South Africa are considered pioneers in sustainability reporting practice and policy, having various degrees of sustainability reporting requirements in place.   In the press release announcing the group, it is noted that these countries are now "taking the opportunity provided by the global political agreement at Rio+20 to share their experience with the rest of the world and contribute to making corporate sustainability reporting standard practice".  The Global Reporting Initiative (GRI) and the United Nations Environment Programme
(UNEP) have been invited  to support them, and other governments have been invited to join the group.

Other governments have also announced related initiatives, such as the United Kingdom government's announcement of the introduction of mandatory carbon footprint reporting for FTSE main market listed companies.

Click for:

• Access to the Rio+20 outcome document (link to UN website, available in various languages)
• Press release "Brazil, Denmark, France & South Africa Join in Commitment to Sustainability Reporting" (link to UN website).

The Corporate Sustainability Forum was designed to provide a launching ground for greater private sector and investor involvement in sustainable development, and to call on governments to take steps that would support corporate sustainability globally.  The forum involved nearly 3,000 participants, approximately half from the business and investor community and half from civil society, academia, cities, government and the United Nations.

Some goals relevant to sustainability reporting and related topics included:

• Demonstrating the critical influence of other stakeholders – including investors, stock exchanges, business schools and universities, and cities – in stimulating corporate sustainability
• Motivating a rising number of companies to commit to universal sustainability principles and report on performance.

At the forum, the following sustainability reporting initiatives were announced:

• A commitment by five stock exchanges - NASDAQ OMX, BM&FBOVESPA, the Johannesburg Stock Exchange (JSE), the Istanbul Stock Exchange (ISE) and The Egyptian Exchange (EGX) - collectively listing over 4,600 companies - to promote sustainable investment.  This is considered a first step towards a larger global call by stock exchanges for sustainability disclosure and performance by listed companies as part of the Sustainable Stock Exchanges initiative (link to press release)*
• Chief executives of 37 banks, investment funds, and insurance companies submitted a Natural Capital Declaration (NCD) aimed towards integrating natural capital considerations into their products and services - including a call for "requiring companies to disclose the nature of their dependence and impact on Natural Capital through transparent qualitative and quantitative reporting" (details, link to NCD website)
• The release of a Declaration for Higher Education Institutions, endorsed by over 60 major business schools and universities around the world committed to incorporating sustainability issues into teaching, research, and their own management and organisational activities (details, link to initiative-specific website).

*Separately, the United Kingdom Deputy Prime Minister announced at the Rio+20 conference that all businesses listed on the Main Market of the London Stock Exchange will have to report their levels of greenhouse gas emissions from the start of the next financial year (April 2013).   The UK is the first country to make it compulsory for companies to include emissions data for their entire organisation in their annual reports (see our separate story).

Various individual organisations also pledged specific actions.

The executive summary also notes a call by investors for integration of sustainability issues within annual reports of all listed and large private companies.  To this end, the outcome document from the main Rio+20 conference contains the following updated text:

We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry, interested governments as well as relevant stakeholders with the support of the UN system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account the experiences of already existing frameworks, and paying particular attention to the needs of developing countries, including for capacity building.

This is substantially changed from the 'zero draft' version which referred to a "global policy framework" effectively requiring sustainability reporting.

The final version of the Rio+20 outcome document will be issued at the completion of the conference, being held on 20-22 June 2012.

Click for Rio+20 Corporate Sustainability Forum executive summary (link to UN Global Compact website).

Mr Goldschmid was the Commissioner of the US Securities and Exchange Commission (SEC) from 2002–2005. Currently, he is Dwight Professor of Law at Columbia University.

Please click the press release for more information.

The IASB Chairman started his speech by declaring that accounting must not be taken as an exact science - the fact that it is often regarded a bean-counting and the expectation that it can, as Sir David Tweedie, Hans Hoogervorst's predecessor, said, "keep capitalism honest" and prevent through transparency crises such as the financial crises have put accounting under a lot of pressure.

However, as Hoogervorst pointed out, accounting is full of judgments and decisions. In his speech, he cited measurement techniques, business models and intangible assets as examples. At some length he discussed the problem of the other comprehensive income ("There is a vague notion that OCI serves for recording unrealised gains or losses, but a clear definition of its purpose and meaning is lacking.") and admitted that the IASB needs to address it as there is much important information in OCI about what gains or losses are ‘sitting’ in the balance sheet. He promised a thorough review of OCI and net income in the upcoming revision of the Conceptual Framework.

After giving reasons for accounting not being an exact science, Hoogervorst turned to the question of what accounting can achieve. He stressed that IFRSs as global standards have already contributed a great deal to transparency and international comparability. He illustrated his point by comparing private sector accounting with the "anarchy" of public sector accounting. Hoogervorst left no doubt that there will always be room for improving the standards but he also stressed that this improvement should follow sensible lines that take into account what accounting can do and what it can't. To his mind, any attempt at improving the standards should be governed by three terms:

• Principles
• Pragmatism
• Persistence.

Principles to avoid rules reflecting pseudo-exactness, pragmatism in accepting that there will not always be a precise answer to every question, and persistence vis-à-vis the pressure that the IASB is continually facing in form of special interests.

Please click for the full text of the speech on the IASB's website.

Much of the focus of the Leaders Declaration is on economic growth and jobs in the context of the current economic climate in order to "work collectively to strengthen demand and restore confidence with a view to support growth and foster financial stability".

In referencing financial sector reform and fostering financial reform,  the declaration states:

We support continuing work to achieve convergence to a single set of high-quality accounting standards.

Within the broader topic of sustainable development, the declaration states the following:

We commit to continue to help developing countries sustain and strengthen their development through appropriate measures, including those that encourage inclusive green growth. We will reaffirm our commitment to sustainable development at the 2012 United Nations Conference on Sustainable Development (Rio+20). We commit to maintaining a focus on inclusive green growth as part of our G20 agenda and in the light of agreements reached at Rio+20 and the United Nations Framework Convention on Climate Change (UNFCCC).

The Rio+20 conference is being held on 13-22 June 2012 and as we have previously reported, is considering a call for mandatory sustainability or integrated reporting by the world's largest companies.

Consistent with the theme of fostering financial stability, the declaration supports various initiatives in response to the global financial crisis, including the Basel capital and liquidity framework; the framework for global systemically important financial institutions (G-SIFIs), resolution regimes, over-the-counter (OTC) derivatives reforms, shadow banking, and compensation practices.  The declaration also endorses the recommendations and the revised Financial Stability Board (FSB) Charter for placing the FSB on an enduring organisational footing, with legal personality, strengthened governance, greater financial autonomy and enhanced capacity to coordinate the development and implementation of financial regulatory policies.

Click for Leaders Declaration — Los Cabos (link to the G20 website).

This Update aims to provide UK listed companies with issues that may occur when responding to the heightened economic uncertainty when preparing their interim financial reports. The Update notes the following issues to consider:

Click for:

• FRC report: An Update for Directors of Listed Companies: Responding to heightened country and currency risk in interim financial reports (PDF 201 KB, link to FRC website)

• Our earlier story on the January 2012 FRC Update

It is time for a bit more realism, thought and perhaps humility in the often circuitous debate over post-crash regulation and reform. Certainly a good start was made in the recent lecture* from Douglas Flint, Group Chairman of global banking heavyweight HSBC. Flint is well-placed to provide this. His father before him was, and still is, a highly influential Scots accountant who, with great charm, took no prisoners when blunt speaking was required. Flint made the point that his father ‘taught generations of accountants in Scotland the difference between a profession and a job, instilling in everyone the responsibility, as well as the privilege, of being in a profession’.

This was his starting point in an argument which stressed human behaviour and downplayed regulatory solutions. Flint’s point was that to bring long-term change, improvement and a change in the public’s perception to the financial sector behaviour had to be at the heart of everything. ‘Capital, liquidity and infrastructure enhancement will also play a role as will better governance and supervision but the greatest opportunity for improvement will come from defining, teaching, reinforcing, rewarding and enforcing values in terms of behaviour’, he said.

But this will always be hard to bring about. ‘If we learn anything from history’, he said, ‘it is that we are destined to repeat mistakes whenever we believe that we have solved definitively the cause of the most recent crisis’. People want solutions which will bring them certainty. Yet certainty is never going to be possible in a complex world. ‘Ever more today, society does not want to acknowledge unpredictability’, he said, ‘particularly around economic outcomes – we want to believe an unwelcome outcome is the cause of failings that need both to be compensated and cause revisions to be made to the system to reinforce predictability and so restore confidence in the future’.

The Eurozone problem, Flint observed, was a good example of this: ‘If only it were as simple as moving a toggle switch between “Austerity” and “Growth”’, he said.

The reasons behind the great financial crisis were, of course, as much human as technical. And that makes it all much harder to accept. It is easier to say someone else was at fault rather than we were all at fault. ‘Simply put’, he suggested, ‘we believed that which was comforting to believe and we believed those in authority whether political, financial or economic when they confirmed that our aspirations were realistic’.

As a result a whole range of unlikely possibilities were seen as easily achievable, such as growth without an improvement in productivity, a step on the housing ladder without the need for a down-payment, house price inflation well beyond wage growth, higher returns without higher risk, and so on. And then post-meltdown and armed with enormous amounts of hindsight, a large number of people announced that they had seen the flaws all the time. ‘The band of those who claim they saw the impending wreck’, he said, ‘grows daily’.

But realistically they did not see it coming, nor were they likely to, and nor could regulation have done much about it. ‘A good parallel’, he suggested, ‘might be that we are very skilled today in understanding the cause of earthquakes, how to calibrate their impact and in building infrastructure and buildings better able to withstand the shocks but we still cannot predict where and how severe the next earthquake will be’.

The important point is to understand the causes, learn the lessons, build barriers to protect us in the future, and restore confidence. And much of that has been done. The question now is to move the argument on. And that means putting more emphasis on human behaviour than on regulation. ‘There is a real need for leadership to call the point at which we have to stop adding to the reform agenda and observe whether the aggregate of all that has been done has been sufficient to change behaviour so that the system in aggregate is fit for a purpose that is universally understood and accepted’, he said.

This is the hardest part. It is much easier to juggle with the creation of regulations than to try to alter behaviours, and being easier people tend to follow that route. Flint devised a simple test to highlight where reformers were putting their efforts. ‘It is worth noting that a simple word search in the Independent Commission on Banking Report mentions capital 463 times, liquidity 140 times and behaviour 7 times’, he reported. ‘In the FSA’s report into the failure of RBS, the numbers are 1389 for capital, 733 for liquidity and 16 for behaviour respectively’.

Yet it is in the field of behaviours where effort should be concentrated. ‘It is the aggregate of behaviour evidenced within the system and in particular how it has changed that will change society’s perception of banks rather than thousands of pages of worthy new regulations designed to work in theory’.

‘So rather than obsess about whether an organisation can break down exposures by the hour, by product, by customer, by industry classification, by business line, by country, by region’, he said, ‘care more about tone from the top, how individuals are screened for behavioural characteristics when recruited or promoted, how ethics and values are taught and reinforced, how values are enforced and rewarded and how an organisation looks for and adapts to changing expectations within the communities it serves’.

In other words make everything rather more professional. And use that word in its original sense.

The Discussion Paper explores the role of audit committees in corporate governance, and divergence in audit committee functions and composition across Europe.  The paper recommends numerous legislative and other responses which would enhance the role of audit committees, such as requiring the audit committee to be a subcommittee of the board of directors with an independent chair.

Furthermore, the paper outlines the suggested roles of the audit committee, which would assist in improved financial reporting.  For example, transparency of audit committee work could be improved through formally advising the board on judgements and conclusions of the audit committee in relation to key or critical accounting policies and estimates.  Numerous other audit-related and corporate governance recommendations are included.

The Discussion Paper is open for comments until 28 September 2012. Click for FEE press release (link to FEE website).

IFRSs and many other financial reporting standards require valuation measurements for certain assets, liabilities and equity interests. Professional valuers are often involved in the calculation of these valuations or in assisting auditors in their determination of whether the values are reasonable and well supported. The draft guide notes the following on how to create effective interaction between the professional valuer and the auditor:

Comments on the exposure draft are due by 15 September 2012.

Click for IVSC exposure draft (link to IVSC website).