Financial Reporting About Transparency

18 December 2009

News release

Financial Reporting About Transparency, Not Mere Compliance

The Securities Commission is urging companies to make transparency the goal of their financial reporting, not mere technical compliance, after the latest round of its monitoring programme showed mistakes continuing to be made in financial reports, despite being highlighted in previous reviews.

The recently completed Cycle 11 of the financial reporting monitoring programme looked at the financial statements of 24 companies with 30 June balance dates. The Securities Commission has written to 19 of the assessed companies to raise 37 issues. This compares to the previous monitoring cycle which saw the Commission write to 17 of 20 companies assessed, to raise 52 matters.

Securities Commission Chief Accountant Alastair Boult said that the latest results show an improvement on the previous cycle, but raised concerns that the same mistakes were still being made.

“While we’re encouraged that the trend is for fewer issues, some companies are failing to properly address issues the Commission has raised previously. I believe that there needs to be a shift in mindset when preparing accounts from mere technical compliance with the letter of the law, to offering real transparency to investors,” he said.

Mr Boult said that errors and omissions in financial reports risked blurring the picture of a company’s true situation. Among the issues identified in the previous cycle and still causing concern were clearly stating the assumptions underlying plant and equipment and investment property valuations; incomplete financial instrument disclosures; and inadequate disclosures for related parties, including what is paid to key management personnel.

“We have also seen basic errors that include inaccurate disclosure of non-audit services received from external auditors, as well as lack of an explicit, unreserved statement of compliance with International Financial Reporting Standards. Substantial security holdings and directors’ interests are not being properly disclosed in some annual reports.

“We believe some of these errors show a degree of carelessness by directors and those preparing statements and could be easily avoided without much effort,” he said.

New standard aims for transparency not mere compliance
Mr Boult reminded companies preparing financial statements for the year ending 31 December 2009 of the requirement to report according to the new standard on Operating Segments. This standard requires companies to publish information consistent with that reported to their management, so the market has the same perspective.

“This standard is about moving beyond mere technical compliance to true transparency - ensuring the market has a clear insight into companies’ operations, including access to the same information they use to make decisions,” he said.

ENDS

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