New vision for corporate accounting

Stephen Beard Nov 8, 2006

KAI RYSSDAL: It’s not usually a good thing when accountants get creative. Enron is probably example number one of what can happen when the people in charge of the books go getting wild ideas. But the accounting profession is indulging itself with a bit of blue-sky thinking. The industry’s biggest firms got together in Paris today. They floated a radical proposal. Not quite bean-counting heresey. But close. From the Marketplace European Desk in London, Stephen Beard has the details.

STEPHEN BEARD: Six major firms — among them PWC, Ernst & Young and Deloitte & Touche — say the financial reporting system is bust. They say it delivers a lot of dense, impenetrable information without giving the full picture of a company’s performance.

Along with earnings, sales and cash flow, they say, companies should be required to provide nonfinancial data. Barney Jopson of the Financial Times:

BARNEY JOPSON: They mean things like employee turnover. If employee turnover rises in a business, it tells you maybe something’s going wrong. About customer satisfaction — that’s a good measure of how well a business is doing. Or about product innovation.

The beancounters are also unhappy about the static system of reporting, with quarterly snapshots of a company’s performance. They claim that gives investors outdated information. What they’re proposing, says Jopson, is that companies should provide a constant, freeflow of data over the Internet:

JOPSON: The vision might be that everyday investors analysts can get in to the office and they’ll get a customised feed with all the information they want about what that company has done in the past day. The technology allows it. Why shouldn’t it happen?

Cost is one reason. Many companies are expected to reject the proposed reform because supplying and verifying all this extra information will be expensive. But, it would mean more work for the accountants.

In London, this is Stephen Beard for Marketplace.

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