United Kingdom

Corporate reporting: Good governance leads to good disclosure

By Tony Cates, UK Head of Audit at KPMG
Much of the hoped-for debate around the future of corporate reporting is not about what is disclosed but about how it is disclosed and by whom. Indeed, you can’t expect good corporate reporting if the process is faulty. In other words, good governance is a prerequisite of good disclosure. We would argue that the process needs to change because the demands made upon preparers and auditors are changing.

 
Investors, in particular, want the information faster and want it to be more forward-looking. Regulators and standard-setters want to see better articulation of the principal risks and uncertainties; and have confidence that boards are maintaining sound risk management and internal control systems. This, in turn, requires a calmer litigation environment.

 
Audit committees ought to play an increasingly important function so that they are more proactive in their discussion with auditors and management, particularly in terms of assessing audit quality and of understanding the risks the company faces. But companies need to be careful not to delegate to the audit committee responsibilities that properly belong to the board, such as attesting that the report and accounts are fair, balanced and understandable.

 
What about the future role of auditors? One point is that auditors should discuss much more thoroughly with audit committees important issues such as the significant accounting judgments and the propriety of the risk management and internal control systems. Furthermore, as the focus shifts from financial statements to other types of corporate statements, such as analysts’ briefings, should such statements be subject to some assurance by auditors? Probably so. If this kind of assurance provides insight and comfort to audit committees and investors, then auditors are likely to expand their role to examine these other types of corporate statements.

 

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