23 Jul 2014
The B20 Panel of six international accounting networks has advised the major national economies comprising the G20 that improvements to corporate and financial reporting could improve investment in infrastructure.
The Panel has described an investment environment in which the lack of transparency over the long-term viability of investment vehicles and the projects themselves has led to a dearth of desperately needed funding.
Estimates of the size of the gap between investment needs and public sector funding sources to 2030 are between $500 billion and in the worst case scenario, $1.5 trillion.
The Panel says that current practices in corporate reporting are not sufficient to provide investors with cohesive, balanced and structured information that tells a story about the long-term value drivers of an organisation. The solution, they write, could well be Integrated Reporting, which would “provid[e] a holistic view of how value is created over time...enable long-term investment decisions and unlock financial capital.”
As for financial reporting, the Panel believes that fewer, more limited improvements can be made. The challenge to fair value as producing volatility that discourages investment is dismissed on the basis that it is widely accepted as the ‘best of a bad bunch’ of treatments and may, in some cases, be important to investors.
The Panel does, however, encourage the International Accounting Standards Board in its efforts to create a single, comparable financial accounting language in IFRS. In particular, it urges a closer look at the potential uses of Other Comprehensive Income – something the IASB is addressing in its upcoming first draft of the Conceptual Framework for Financial Reporting.
Companies, the Panel argues, should “focus on metrics that are truly material to long-term value creation and most useful to investors”, whilst analysts should “get a better grasp on long-term metrics”, allowing institutional investors to focus their capital allocations on the longer-term.
Under the Panel’s proposals, the demand for infrastructure would therefore be met with money from investors confident that budgets, risk and volatility are all under control.