The Accountancy profession needs to up its game

I recently had the opportunity to participate on a panel session on Integrated Reporting <IR> at the Institute of Management Accountants Annual Conference in Los Angeles.  The panel was moderated by Carlos Martin Tornero, Editor of The Accountant magazine.  Carlos’ first question was “why did you become interested in <IR> in the first place”?  My response, “I got involved in <IR>, to be quite frank, because I am thoroughly disgusted about what I do for a career”.

Strong statement?  Most definitely.  Accurate statement?  Pretty much so, but I would admit there was added emphasis for audience entertainment and to make my point.  I have been in the accounting profession for over 30 years, most of that in the external reporting area.  While there is probably a number of reasons I became an accountant, deep down I think a motivating factor was the profession’s important responsibility in the proper functioning of the capital markets.  As indicated in FASB’s Concepts Statement No. 1, financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.

Unfortunately, I believe my profession has failed miserably in achieving that objective as our day to day work seems to have become mostly a compliance exercise rather than a communication exercise.  In essence, I produce reports that I don’t think too many people actually look at, except the regulators.  In my opinion, the accounting profession has really lost its way in external financial reporting and it needs to up its game and take a leadership role.  We as a profession need to change the way we do reporting and I personally believe <IR> is the best vehicle for us to actually meet our objective.

Another question Carlos asked was “<IR> is a relatively recent trend that everyone says they embrace.  But I always wonder if everyone is ready to walk the walk and really use <IR>.  Is this your perception”?  My response, “It would be my perception as well.  Quite frankly, those of us who are very close to it think it is the greatest thing ever.  I think you hear a lot of positives about <IR> from us.  But in general, especially in the US, it is at best a blip on the radar screen”.

I personally believe we have horribly convoluted the messaging of <IR> in the US.  Our message seems to confuse <IR> with ESG and sustainability.  ESG and sustainability are very important, but so are the other four <IR> capitals – Intellectual, Human, Financial, and Manufactured.  Furthermore, it seems like there is framework after framework after framework being issued – people are confused.  I am passionate about <IR> because I believe it offers the potential for significant improvements in the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital.

I have had the pleasure of speaking at the Baruch College Annual Financial Reporting Conference in New York for the past 10 years.  A couple of years ago, my son was in attendance.  He was majoring in accounting and since then has graduated and joined the accounting profession.  I remember mentioning during my presentation that the generation that fought World War II is known as the “Greatest Generation” and I speculated what would be the term for my generation.  What I came up with was the “Kick the Can Down the Road Generation”, that is, blame others, make very small incremental changes, but never really actually address the big issues.  Deep down, I think it was my way of apologizing to him for my part in what we have left for him in his new profession.

I don’t think one company or a group of companies can lead the necessary changes to improve financial reporting.  Rather, I strongly believe it is my profession, the accounting profession, which needs to lead in demanding changes to our current approach to financial reporting.  While there are a lot of current efforts on items such as “disclosure overload”, I personally see these as the small incremental changes that define my generation, with a healthy dose of blaming someone else such that not much actually changes.