Talking to investors – an effective conversation?

On the IASB’s faltering attempts to communicate with a (perhaps) key constituency

The IASB has been making a decent attempt to communicate with investors, but it’s apparently not easy. Its website has a section dedicated to such readers, including high-level summaries of various standards and summaries of investor feedback on some of its projects. The centrepiece of its efforts might be the “Investor Perspectives” series, written by IASB members and apparently designed to provide a more plain language insight into aspects of current standard-setting. The IASB seems to have had trouble maintaining the enthusiasm for the effort though. After a brisk initial pace, the frequency dropped to a mere three entries in 2013, although the total is already at four for this year.

The series has exhibited a very inconsistent notion of what might constitute an effective investor perspective. Patrick Finnegan once turned in an article titled “What would Shakespeare say about Financial Statement Presentation,” although he couldn’t keep that creative premise going much beyond the opening paragraph. The nadir was likely a 2011 entry by Paul Pacter titled Developing accounting standards consistent with the CFA Institute’s Vision, which commented in detail on “the consistency of recent standards issued by the IASB with the vision set out in July 2007 by the CFA Institute in its landmark policy paper A Comprehensive Financial Reporting Model: Financial Reporting for Investors.” When I say “in detail”, I mean that Pacter kept it going for 6,000 words, implicitly telling investors he expects them all to aspire to being diehard inside-the-box geeks, or else not even to bother. The most recent entries, for the most part, are unremarkable broad summaries that don’t seem to have any distinctive angle on things.

A few weeks ago, the IASB launched a new “Investor Update” series, aiming “to make it easy for investors to keep up to speed on changes in the world of International Financial Reporting Standards and how those changes may affect an investor’s day job.” Here’s how the first issue introduces itself:

  • “While we concede that technical accounting can be a dry topic (although we have had some surprisingly emotive discussions!), financial information remains the lifeblood of all fundamental investment decisions. The IASB writes accounting standards to ensure that this financial information is as useful as possible to investors in making decisions, but we cannot do that in isolation—we need your help.
  • However, we find that investors are often wary of speaking to us. Some don’t think it’s their job. Others are afraid that they will find themselves drawn into detailed technical accounting discussions. Still others aren’t interested in the accounting requirements until they are finalized: don’t call me until it affects me!
  • The Investor Update aims to break through these barriers…”

It’s not very fair to form much of an impression of this series based merely on its six-page initial issue. Still, it’s interesting that its one-page summary of IFRS 15, in claiming to look at “the investor-relevant aspects of transition,” focuses on the two choices of transition method provided to issuers, rather than on the substance of the new standard – the implication is that investors may not care much about what actually changes, as long as they know one thing is comparable to another. This may indeed be the case – the Canadian experience of making the transition to IFRS largely supports the notion. But it raises a key question: are investors essentially analogous to (say) cellphone users, who don’t need to have any idea of the technical specifications underlying how the device does what it does, as long as they understand the functionality well enough to achieve what they’re interested in doing? If so, should we collectively embrace that concept and not worry about trying to specifically draw investors into the meat of the standards – after all, if, as set out above, investors are reluctant to get involved with the IASB’s activities, why should we assume they don’t know what’s best for themselves? Or is there a coherent, mutually meaningful investor relationship to standards and their evolution that somehow differs (not just by being more “high-level”) from that of preparers and auditors, and which the IASB hasn’t quite unlocked yet?

Much of the rest of the Investor Update publication consists of links to material that’s already available, with the exception of a brief interview with the departing IASB member Patricia O’Connell, mainly notable for an unseemly degree of self-congratulation (Q: What have been your best memories working at the IASB?; A: I think the staff is probably the most competent group of people that I have ever had the pleasure to work with before in my life, and I’ve worked with a lot of very bright people. When you stop and think about how technical this job is…and that many of our staff are working in a language that is not their native language and yet producing these marvelous Standards, you just realize how incredibly talented they are.”). Such material only conveys the sense, rightly or wrongly, that the IASB’s investor-related efforts are ultimately more about internal dynamics than about truly reaching out and making a connection…

The opinions expressed are solely those of the author

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