By Mark Vaessen, Global IFRS Leader at KPMG
In the current corporate reporting model, an overwhelming emphasis is placed on accurately assessing a company’s financial progress over the previous year or quarter. Regulators and standard-setters have focused on requiring companies to provide a record of their past financial performance.
While there are ongoing healthy debates about what is performance and whether assets and liabilities are measured appropriately at fair value or cost etc, there is a consensus in the business community that the present model, while not perfect, does a reasonable job in conveying an accurate picture of the company over a given period of time.
But investors and other stakeholders also want forward-looking information about strategy, business models and the ability of the company to create sustainable long-term value. This is easier said than done. Some investors say they are comfortable with forward-looking information and uncertain measures, especially if you give them the underlying assumptions involved in developing these estimates. Preparers, however, worry that the risk of litigation may increase if they provide detailed forward-looking statements.
In addition, how does the role of the auditor change if more emphasis is placed on forward looking information? For example, should audit firms provide assurance on key risks or risk management processes associated with each business model, as well as annual reports? It will not be easy to reconcile the demands of investors for forward-looking information with the need for assurance that the data is accurate.