Risk-averse Australian boards are dragging the chain on global efforts to help investors by simplifying company financial statements, accounting experts say.
Major companies are being pressured to follow global moves to radically re-think incomprehensible financial reports, despite fierce opposition from the director community which accounting heavyweights warn is punishing Australian investors.
The local meeting of global accounting heavyweights follows major moves including in Britain and South Africa towards so-called integrated reporting, where companies are encouraged to tell a clear, concise story to investors about their future prospects, not just the financials.
Despite widespread global adoption and pilot programs in Australia such as by National Australia Bank, global accounting heavyweights warn that opposition by Australian directors, who fear being sued for making future forecasts, is leaving Australia behind.
"In the UK after Brexit there is political pressure to build trust back into the business community," founding CEO of the International Integrated Reporting Council and director of the UK Financial Reporting Council Paul Druckman told The Australian Financial Review.
"My perception is the directors association in Australia have built this barrier, and I think it's a mistake," he said.
9 out of 10 don't understand
Chairman of the International Integrated Reporting Council Mervyn King said the radical re-think was critical given one-third of directors didn't understand financial reports, let alone investors.
"This mess, the balance sheet, profit and loss statement, according to IFRS to 9 out of 10 people it's incomprehensible.
"Research in London shows that up to 30 per cent of directors don't understand the financial statements and even worse don't even read the so-called non-financial aspects and yet out goes the annual report and it's their report. The importance of an integrated report is it's the board applying it's mind understand this mass of information."
Research by IP firm Ocean Tomo in 2015 found that net assets of S&P500; companies represented 16 per cent of their market capitalisation, compared to 83 per cent in 1975. Intangible factors, including trust, reputation and long-term viability of the business, not necessarily captured by accounting records, have become increasingly important.
Sceptical
But chairman of the Australian Financial Reporting Council Bill Edge said Australian directors believed integrating reporting would simply add another layer to an already complex regime.
"At the moment financial reports are too long and too complex and a simple example is the remuneration report," Mr Edge said. "The thought of a mandatory framework underlying an extensive heavily compliant financial reporting system is not in favour," Mr Edge said.
"The issue of director liability is a very strong one particularly for forward-looking information. I don't think anybody wants legislation ... we have an opportunity to self-regulate to help drive best practice rather than waiting for something to be imposed upon us," Mr Edge said.
But CFO at NAB Gary Lennon backs the radical changes.
"When you are in doubt you do disclose, so you add stuff and by virtue of adding stuff in you are nearly misleading by inclusion and you nearly lose the essence of what you are about. So we signed up to be a pilot for integrated reporting," Mr Lennon said.
"We have had 2000 downloads of that document since October compared to six retired accountants from Taree, so the proof is in the pudding."
