UK - Financial reporting by companies should meet the needs of owners, which means that the role of company audits and related disclosure to shareholders are key governance issues, the Local Authority Pension Fund Forum (LAPFF) has claimed. 

The LAPFF is pushing for improved openness and accountability in company audit practices as part of its work on financial reporting in the wake of the financial crisis.

Responding to a number of consultations - from the Auditing Practices Board, the Department for Business Innovation and Skills, and the Financial Reporting Council - the LAPFF has called for auditor independence and a statutory shareholder vote on audit committee reports. This is in addition to an annual election for all directors to ensure the audit committee members are accountable to shareholders.

The organisation also urged the government to maintain the requirement for companies to distribute the resignation statement from departing auditors to shareholders to avoid shareholders being left unaware of potential problems. Meanwhile, the LAPFF is pressing for a greater emphasis on representing uncertainty in corporate numbers instead of reducing complexity when reviewing corporate reporting requirements.

Councillor Ian Greenwood, chairman of the LAPFF, said that most of the "post-crisis reform effort" has focused on issues such as the work of company boards and remuneration.

But he added: "Financial reporting remains a key concern, and an area in which the forum continues to be very active. We believe there are relatively modest reforms available that could greatly improve shareholder oversight to the benefit of all parties."

This view is supported by research from PricewaterhouseCoopers (PwC) which says the vast majority of companies are not reporting clear enough information to allow investors and customers to understand their business activities.

The analysis of corporate reporting by FTSE 350 companies suggested most businesses are "box ticking" to meet regulatory requirements but are not communicating clearly on issues such as performance, risk appetite and governance.

In the document 'What does your reporting say about you?' PwC claimed a "rethink in the way risk and governance are viewed within companies is essential". It argued the quality and scope of available information determines how well firms are managed, how effective the governance strategy is and whether shareholders should have confidence in their investment.

The report showed that 85% of FTSE 350 companies disclose their key performance indicators (KPI) and 80% outline strategic priorities, but only 12% clearly align KPIs and strategy and only 19% use their strategy to underpin the reporting.

PwC noted that effective governance could be undermined by a lack of strategic perspective, while external reporting dominated by regulatory compliance impacts the effectiveness of shareholder engagement. It is calling for the development of one integrated model for both internal and external reporting that includes external drivers, strategy, resources and relationships and performance. It argued: "Corporate transparency that joins the dots and communicates an integrated picture of the business is set to be the key to successful stakeholder engagement".

David Phillips, senior corporate reporting partner at PwC, added: "Disconnected reporting promotes the wrong image, and it raises questions about the quality of management and governance of a company, which can only contribute to uncertainty and market doubts."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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