Global Dialogue with Capital Market Stakeholders

Reading 3. 1 : Global Dialogue with Capital Market Stakeholders The rules, processes and institutions that govern the global capital markets are struggling to keep up with the constant innovation of the 21st century. Today’s investors demand financial reporting they can trust and businesses are trying to find the right way to express this information while regulators are seeking to promote investor confidence and market integrity.

This is an article written by the worlds 6 largest audit firm CEO’s covering the critical issues coming out of the capital markets in order to improve audit quality and reduce the risk of corporate fraud. The key issues raised at the roundtable discussions were: 1. Global convergence: the need for consistency in financial reporting • The key finding of the report was an overwhelming support for moving toward a single set of high quality global accounting standards and there is a high level of confidence that this goal can be achieved. Convergence will ensure that businesses and investors everywhere will benefit from comparability that leads to relevant and reliable financial reports • Current example of work in progress include the FASB and IASB converging US GAAP and IFRS as well as the announcement by the US SEC that it will accept without reconciliation financial statements from foreign private issuers that are prepared in accordance with IFRS and issued by the IASB. • The key themes regarding convergence: Preference for principles based standards rather than rules based • The need for sufficient education and training for all participants in the financial reporting supply chain • Recognising the unique needs of small and medium sized enterprises: greater difficulty shifting to IFRS. • Sovereignty: cross border cooperation in order to ensure that national governments do not alter global standards in a way that impacts comparability and consistency 2. Audit quality: the need for continuous improvement and greater onsistency • The responsibility of auditors: Role of auditors change to reporting to the audit committee and being accountable to shareholders rather than management • Constructive communications: Between auditors/management/audit committee • Uniform audit and independence standards • Regulatory oversight: Independent oversight improved level of investor trust • Professional judgement: i. e. from auditors and regulators 3. Prevention and detection: a two-pronged approach to fraud Recognition of the limitations of fraud detection and the importance of prevention • Support of enhancements in corporate governance: Strong internal controls have improved investor confidence • The need for collaboration: Business leaders to maintain and implement tight internal controls, regulators setting appropriate guidelines and enforcement standards, auditors continue to improve methodologies and spot red flags 4. The future of business reporting • Customization for different end users Non financial information: increasingly important in assessing company performance • Timing: resistance against real-time reporting as it would produce market inefficiency and shift focus to the short term rather than long term goals • Stewardship: greater focus on long term needs of owners by management • Assurance: lack of consensus about the kinds of information that should be subject to audit, the timing under which audits should take place, the methodologies and technologies employed in such audits.