Public Dialogue Tour:
San Francisco
Panelists and audience members at the Center for Audit Quality’s public dialogue in San Francisco called for more simplicity and a back-to-basics approach to financial reporting.
“It feels like our accounting standards have become at least as complex, if not more so, than the IRS tax code,” said panelist Brooke Seawell of New Enterprise Associates, a venture capital firm. “We just plain need to simplify across the board -- period, end of topic.”
The San Francisco forum, which attracted nearly 50 investors, corporate executives, academics, regulators and public company auditors to the Four Seasons Hotel, was the seventh stop in the CAQ’s nationwide public dialogue tour and the final event in 2007. The tour will resume next year.
Cindy Fornelli, the CAQ’s executive director, told the San Francisco audience that suggestions and ideas gathered during the tour would form the basis for a series of recommendations intended to improve public company financial reporting.
The other San Francisco panelists were: California State Treasurer Bill Lockyer; James G. Ellis, dean of the Marshall School of Business at the University of Southern California; and Jeffrey Hall, chief financial officer at KLA-Tencor.
In addition to the plea for simplicity, forum participants suggested that annual reports should include clearly presented information on cash flow and some type of executive summary of the company’s prospects.
“You live and die on your cash flow. The simplification of that kind of reporting
is going to help any investor at any level,” Ellis said.
Seawell said he considers information about cash flow the most useful part of an annual report. He said he finds estimates of a company’s goodwill, brand value and other intangibles virtually worthless. “I haven’t found an investor yet who thinks that goodwill is really an asset,” he said. “For most people, what they care about is, have cash and cash equivalents changed.”
Forum participants endorsed the concept of an executive summary as part of the annual report, although they also agreed that many corporate executives are reluctant to offer forward-looking information because of the fear of litigation. “I don’t know what you do about the desire to get more forward-looking information,” Lockyer said.
While panelists agreed that financial reporting and confidence in the capital markets have improved considerably over the past several years, Lockyer said he remains concerned about the potential for future financial scandals. In particular, he believes the growing popularity of carbon trading raises difficult questions for investors and auditors.
“The potential for fraud in the international trading and evaluation of carbon credits is just huge. It is probably already happening,” Lockyer said. “Auditing it to demonstrate that the claims are accurate becomes a very substantial problem…It’s a system that can be manipulated, and there’s a potential for tremendous fraud.”
On another topic, some participants suggested that attempts to ensure the independence of auditors have also reduced cooperation between auditors and corporate executives.
“Today, in many companies, we’ve really lost the sense of partnership with the audit team,” Seawell said. “Most of the time today, a company’s finance department is left with more and more complex and esoteric rules to follow and less and less help from the audit firm in understanding how to deal with those rules.”
For more information and video from the previous events on the Public Dialogue Tour visit http://www.thecaq.org/events/PDT/index.htm.
If you are interested in attending future events or if you have any questions please send an email to info@thecaq.org
