CIMA study on complexity of corporate reporting
07 May 2009
The Chartered Institute of Management Accountants (CIMA) has published a report on Complexity, Relevance and Clarity of Corporate Reporting: The views of CIMA FTSE 350 Directors.
The overall conclusion:
The report identifies the following areas for improvement:
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We fear that statutory accounts limit the scope for describing what a business actually does, that audit now merely confirms that the technical accounting has been performed in line with the regulations, and that management has fewer opportunities to explain performance and strategy – with integrity – because they are bound by complex rules to report less relevant information in more detail. The report identifies four areas for improvement: |
- Principles based standards. Firstly, to avoid setting rules too tightly to allow for the communication of genuinely useful and insightful information, we strongly urge an adherence to a principles based approach to drawing up reporting requirements. The pressure to align IFRS with those of United States GAAP may have started to tilt the balance towards rules based standards. But this could only further complicate financial reporting and limit the ability of CFOs and boards to apply sensible judgments to how they translate practical management information into published reports and accounts.
- Materiality. Today's financial IT systems and more complicated business practices are capable of producing huge volumes of data. But we must remain focused on what really has a bearing on a company's performance and viability.
- Narrative reporting. Take care not to overcomplicate the management commentary. This is a crucial area of financial reporting, and one that has evolved considerably over the past few years. We believe that published financial reports, should communicate to a wide audience the kind of information usually imparted in analysts presentations – in other words, the data and assumptions that drive decision making, information which often falls outside the scope of GAAP.
- Integrity. Integrity and professionalism are the cornerstones of our profession and we expect our members to display these qualities at all times. But excessive complexity in the accounting rules can actually make it harder for them to do so.
