Discussion of ‘How can business reporting be improved A research perspective’
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On: 27 January 2014, At : 01: 19
Publisher: Rout ledge
I nform a Lt d Regist ered in England and Wales Regist ered Num ber: 1072954 Regist ered office:
Mort im er House, 37- 41 Mort im er St reet , London W1T 3JH, UK
Accounting and Business Research
Publicat ion det ails, including inst ruct ions f or aut hors and subscript ion
inf ormat ion:
ht t p: / / www. t andf online. com/ loi/ rabr20
Discussion of ‘ How can business reporting be
improved? A research perspective’
Lindsay Tomlinson
a
a
Barclays Global Invest ors , E-mail:
Published online: 28 Feb 2012.
To cite this article: Lindsay Tomlinson (2006) Discussion of ‘ How can business report ing be
improved? A research perspect ive’ , Account ing and Business Research, 36: sup1, 107-108, DOI:
10. 1080/ 00014788. 2006. 9730051
To link to this article: ht t p: / / dx. doi. org/ 10. 1080/ 00014788. 2006. 9730051
PLEASE SCROLL DOWN FOR ARTI CLE
Taylor & Francis m akes every effort t o ensure t he accuracy of all t he inform at ion ( t he “ Cont ent ” )
cont ained in t he publicat ions on our plat form . However, Taylor & Francis, our agent s, and our
licensors m ake no represent at ions or warrant ies what soever as t o t he accuracy, com plet eness, or
suit abilit y for any purpose of t he Cont ent . Any opinions and views expressed in t his publicat ion
are t he opinions and views of t he aut hors, and are not t he views of or endorsed by Taylor &
Francis. The accuracy of t he Cont ent should not be relied upon and should be independent ly
verified wit h prim ary sources of inform at ion. Taylor and Francis shall not be liable for any
losses, act ions, claim s, proceedings, dem ands, cost s, expenses, dam ages, and ot her liabilit ies
what soever or howsoever caused arising direct ly or indirect ly in connect ion wit h, in relat ion t o or
arising out of t he use of t he Cont ent .
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or syst em at ic reproduct ion, redist ribut ion, reselling, loan, sub- licensing, syst em at ic supply, or
dist ribut ion in any form t o anyone is expressly forbidden. Term s & Condit ions of access and use
can be found at ht t p: / / www.t andfonline.com / page/ t erm s- and- condit ions
I07
zy
Discussion of ‘How can business reporting
be improved? A research perspective’
Downloaded by [Universitas Dian Nuswantoro], [Ririh Dian Pratiwi SE Msi] at 01:19 27 January 2014
Lindsay Tomlinson*
In responding to the thoughts of the experts I need
to explain my viewpoint, which is that of an interested observer who has an important stake in the
outcome of the debate. As vice-chairman of
Barclays Global Investors I approach the issues as
a large scale institutional investor which, because
of its quantitative investment approach, has a critical interest in the origin and meaning of the reported numbers. In a wider context, in various
capacities at the Financial Reporting Council, the
Investment Management Association and the
Association of British Insurers, I take the broader
investing industry point of view. And finally, I am
the only non-expert to be invited to speak at this
conference. so please interpret my thoughts in that
context.
One major point to make at outset is that it is
generally very difficult to get institutional investment practitioners to take an interest. They all
know that financial reporting is really important,
but are reluctant to get engaged as they find themselves down in the weeds a lot quicker than they
want to be, and spending much more time than
they would like, on very dry debate. Against that
background, I would comment that the ‘invisible
hand’ works extraordinarily well. The market does
work better than any individual. There is no obvious free lunch available from any manifest deficiencies in financial reporting.
Having made this point, I want to cover three
main topics, as follows:
the market place, but for the vast majority of companies, what happened to their share prices?
Absolutely nothing. Disclosure will obviously affect the cost of capital; it is just not clear that the
information is feeding through very quickly.
I would also agree with the view that it is a
question not of ‘if you disclose’, but ‘when you
disclose’. The worst corporate frauds have been
disclosed when the company concerned runs out
of cash - like, for example, Barings. So it is a
question of when you tell the market, rather than
if - critical information will feed through over
time.
As the paper suggests, corporate disclosure is a
continuous process, and as an investor I understand it that way. As an investor, I realise that
I am being ‘managed’ by company directors.
Surprisingly, I like it! I do not like the feeling that
I am being manipulated, but I do like to have my
expectations properly managed.
That is where the idea of disclosure being a continuous process comes in. The Operating and
Financial Review sets out a road map. It establishes a strategy for the company, sets out the targets
that the management have chosen to pursue, and
subsequently reports progress against those selfselected targets. That plays into the paper’s ideas
about marginal cost and marginal benefit, and addresses the Government agenda to which it referred. The ideas of what you actually disclose,
who makes the decisions around disclosure and so
on, are extremely important. They are governance
issues.
zyxwvutsr
zyxwvutsr
zyxwvutsrqpon
1 . OFR and the business review.
2. IFRS.
3. Sustainability.
I . The Operating and Financial Review
Why is this so important? It plays into the dis-
cussion about disclosure at this conference.
I agree with comments that we are a very long
way from modelling the economic effects of corporate disclosures on the cost of capital. Just look
at the IFRS disclosures that we have had in the UK
this year. Much new information is going out into
”The author is vice-chairman, Barclays Global Investors. Email: sandy.adolpho@barclaysglobal .con1
2. IFRS
I stated at the outset that the ‘invisible hand’
worked well, but I think that practitioners are really struggling with the development of IFRS at the
moment. It feels as if we have come into the cinema when the movie has been running for a couple
of hours, with only an hour to go. Is it possible to
understand or even re-write the plot at this point? I
struggle with ‘fair valuing’ everything. It seems
that we are actually trying to value a company, and
to end up with the financial statements which sum
to its market capitalisation. But we are already
Downloaded by [Universitas Dian Nuswantoro], [Ririh Dian Pratiwi SE Msi] at 01:19 27 January 2014
108
zyxwvutsrqpon
valuing the company through the market and not
through the financial statements. There is a fallacy
here.
So practitioners need to engage with the IASB
and have some sensible discussions, but it is hard
to know how to do that without getting sucked
into the mire. I am greatly in favour of the investor view the paper suggested about how we are
trying to view earnings. How we feed that through
into the way that standards develop is not at all
clear.
Just as an aside, I find it slightly ironic that a
number of the academics addressing the conference are based in the US and are heavy influences
on IASB. But IFRS is being implemented in the
zyxw
zyxwv
ACCOUNTING AND BUSINESS RESEARCH
rest of the world and not in the US. The whole convergence project needs to be reviewed.
3. Sustainability
I would agree with a number of the papers on
this. Although people are talking about it, I do not
think this risk is being seriously addressed by corporates and investors. The big issue is that we deal
in price; sustainability is mis-priced; and I do not
see it being adequately tackled in our system.
My conclusion is that this is vital work. This has
been an important conference. We need to take
things in the right direction, but I have concerns as
to whether we have the institutions to enable us to
do so.
On: 27 January 2014, At : 01: 19
Publisher: Rout ledge
I nform a Lt d Regist ered in England and Wales Regist ered Num ber: 1072954 Regist ered office:
Mort im er House, 37- 41 Mort im er St reet , London W1T 3JH, UK
Accounting and Business Research
Publicat ion det ails, including inst ruct ions f or aut hors and subscript ion
inf ormat ion:
ht t p: / / www. t andf online. com/ loi/ rabr20
Discussion of ‘ How can business reporting be
improved? A research perspective’
Lindsay Tomlinson
a
a
Barclays Global Invest ors , E-mail:
Published online: 28 Feb 2012.
To cite this article: Lindsay Tomlinson (2006) Discussion of ‘ How can business report ing be
improved? A research perspect ive’ , Account ing and Business Research, 36: sup1, 107-108, DOI:
10. 1080/ 00014788. 2006. 9730051
To link to this article: ht t p: / / dx. doi. org/ 10. 1080/ 00014788. 2006. 9730051
PLEASE SCROLL DOWN FOR ARTI CLE
Taylor & Francis m akes every effort t o ensure t he accuracy of all t he inform at ion ( t he “ Cont ent ” )
cont ained in t he publicat ions on our plat form . However, Taylor & Francis, our agent s, and our
licensors m ake no represent at ions or warrant ies what soever as t o t he accuracy, com plet eness, or
suit abilit y for any purpose of t he Cont ent . Any opinions and views expressed in t his publicat ion
are t he opinions and views of t he aut hors, and are not t he views of or endorsed by Taylor &
Francis. The accuracy of t he Cont ent should not be relied upon and should be independent ly
verified wit h prim ary sources of inform at ion. Taylor and Francis shall not be liable for any
losses, act ions, claim s, proceedings, dem ands, cost s, expenses, dam ages, and ot her liabilit ies
what soever or howsoever caused arising direct ly or indirect ly in connect ion wit h, in relat ion t o or
arising out of t he use of t he Cont ent .
This art icle m ay be used for research, t eaching, and privat e st udy purposes. Any subst ant ial
or syst em at ic reproduct ion, redist ribut ion, reselling, loan, sub- licensing, syst em at ic supply, or
dist ribut ion in any form t o anyone is expressly forbidden. Term s & Condit ions of access and use
can be found at ht t p: / / www.t andfonline.com / page/ t erm s- and- condit ions
I07
zy
Discussion of ‘How can business reporting
be improved? A research perspective’
Downloaded by [Universitas Dian Nuswantoro], [Ririh Dian Pratiwi SE Msi] at 01:19 27 January 2014
Lindsay Tomlinson*
In responding to the thoughts of the experts I need
to explain my viewpoint, which is that of an interested observer who has an important stake in the
outcome of the debate. As vice-chairman of
Barclays Global Investors I approach the issues as
a large scale institutional investor which, because
of its quantitative investment approach, has a critical interest in the origin and meaning of the reported numbers. In a wider context, in various
capacities at the Financial Reporting Council, the
Investment Management Association and the
Association of British Insurers, I take the broader
investing industry point of view. And finally, I am
the only non-expert to be invited to speak at this
conference. so please interpret my thoughts in that
context.
One major point to make at outset is that it is
generally very difficult to get institutional investment practitioners to take an interest. They all
know that financial reporting is really important,
but are reluctant to get engaged as they find themselves down in the weeds a lot quicker than they
want to be, and spending much more time than
they would like, on very dry debate. Against that
background, I would comment that the ‘invisible
hand’ works extraordinarily well. The market does
work better than any individual. There is no obvious free lunch available from any manifest deficiencies in financial reporting.
Having made this point, I want to cover three
main topics, as follows:
the market place, but for the vast majority of companies, what happened to their share prices?
Absolutely nothing. Disclosure will obviously affect the cost of capital; it is just not clear that the
information is feeding through very quickly.
I would also agree with the view that it is a
question not of ‘if you disclose’, but ‘when you
disclose’. The worst corporate frauds have been
disclosed when the company concerned runs out
of cash - like, for example, Barings. So it is a
question of when you tell the market, rather than
if - critical information will feed through over
time.
As the paper suggests, corporate disclosure is a
continuous process, and as an investor I understand it that way. As an investor, I realise that
I am being ‘managed’ by company directors.
Surprisingly, I like it! I do not like the feeling that
I am being manipulated, but I do like to have my
expectations properly managed.
That is where the idea of disclosure being a continuous process comes in. The Operating and
Financial Review sets out a road map. It establishes a strategy for the company, sets out the targets
that the management have chosen to pursue, and
subsequently reports progress against those selfselected targets. That plays into the paper’s ideas
about marginal cost and marginal benefit, and addresses the Government agenda to which it referred. The ideas of what you actually disclose,
who makes the decisions around disclosure and so
on, are extremely important. They are governance
issues.
zyxwvutsr
zyxwvutsr
zyxwvutsrqpon
1 . OFR and the business review.
2. IFRS.
3. Sustainability.
I . The Operating and Financial Review
Why is this so important? It plays into the dis-
cussion about disclosure at this conference.
I agree with comments that we are a very long
way from modelling the economic effects of corporate disclosures on the cost of capital. Just look
at the IFRS disclosures that we have had in the UK
this year. Much new information is going out into
”The author is vice-chairman, Barclays Global Investors. Email: sandy.adolpho@barclaysglobal .con1
2. IFRS
I stated at the outset that the ‘invisible hand’
worked well, but I think that practitioners are really struggling with the development of IFRS at the
moment. It feels as if we have come into the cinema when the movie has been running for a couple
of hours, with only an hour to go. Is it possible to
understand or even re-write the plot at this point? I
struggle with ‘fair valuing’ everything. It seems
that we are actually trying to value a company, and
to end up with the financial statements which sum
to its market capitalisation. But we are already
Downloaded by [Universitas Dian Nuswantoro], [Ririh Dian Pratiwi SE Msi] at 01:19 27 January 2014
108
zyxwvutsrqpon
valuing the company through the market and not
through the financial statements. There is a fallacy
here.
So practitioners need to engage with the IASB
and have some sensible discussions, but it is hard
to know how to do that without getting sucked
into the mire. I am greatly in favour of the investor view the paper suggested about how we are
trying to view earnings. How we feed that through
into the way that standards develop is not at all
clear.
Just as an aside, I find it slightly ironic that a
number of the academics addressing the conference are based in the US and are heavy influences
on IASB. But IFRS is being implemented in the
zyxw
zyxwv
ACCOUNTING AND BUSINESS RESEARCH
rest of the world and not in the US. The whole convergence project needs to be reviewed.
3. Sustainability
I would agree with a number of the papers on
this. Although people are talking about it, I do not
think this risk is being seriously addressed by corporates and investors. The big issue is that we deal
in price; sustainability is mis-priced; and I do not
see it being adequately tackled in our system.
My conclusion is that this is vital work. This has
been an important conference. We need to take
things in the right direction, but I have concerns as
to whether we have the institutions to enable us to
do so.