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B20 Panel believes changes to accounting principles are not a tool to increase the attractiveness of long-term financing

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24 Jun 2014

In light of the importance of infrastructure and other long-term investment for the global economy, the B20 forum through which the private sector produces policy recommendations for the Group of 20 (G20) leaders created a taskforce, which developed actionable recommendations for the G20. As a result of one of these recommendations, the six largest international accounting networks formed a panel to analyse existing accounting and corporate reporting practices and suggest improvements. The panel has now published a report focussing on whether improvements in accounting and corporate reporting could help to attract increased private financing by offering a broader, longer-term perspective on shareholder value creation.

As the Panel found that information about key inputs for investment decisions is often not captured in a cohesive, balanced and structured way by the existing corporate reporting model, it recommends corporate reporting innovations and initiatives that provide investors with a longer-term and broader perspective on shareholder value creation to complement the historical financial performance and current financial position perspective provided by financial statements should be encouraged. The relevance of integrated reporting is especially noted in this respect. The Panel recommends that each G20 Finance Minister should assess and address any practical, legal or statutory barriers to improved corporate reporting.

The Panel also investigated suggestions that the use of fair value accounting principles has led to short-termism in investor behaviour but found that when making investing decisions, investors tend to place the emphasis on the underlying features and risks of investment opportunities. Therefore, the Panel concludes that changes to accounting principles would not increase the attractiveness of long-term infrastructure investments. However, the Panel supports the IASBs efforts to improve financial reporting and recommends that the IASB should continue working with priority on the issuance of a global standard on insurance contracts in the near future and should give further consideration to performance reporting as part of the Conceptual Framework and disclosure initiative projects.

Since regulatory requirements, regulatory changes and related uncertainties often influence investing decisions, the Panel recommends that regulators should evaluate whether risk charges or calculations are appropriately aligned with the risk patterns of investments in infrastructure projects desired in their respective jurisdictions.

Please click for access to the full report.

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