Better Reports Wanted By Those At Conference

Press, Volume CVIII, Issue 31755, 12 August 1968, Page 8

Better Reports Wanted By Those At Conference

One of the problems facing investors and analysts is the lack of information flowing from companies in New Zealand, many of which are listed. However, if some of the conclusions reached at last week’s two-day seminar on external financial reporting spreads through a wider cross-section of the business community, then the future prospect of more meaningful company information is bright.

The main attitude arising from the seminar was that shareholders letter to shareholders puband others interested in company affairs—which would include analysts lished as part of the annual and intending investors—could be given more information and in much report and accounts or the better form for both those who do not readily understand company circulation of the chairman’s accounts and those who do

The significance of i is only important if persons who could havi field of external reportii

Fortunately, those who attended the seminar included company managers, secretaries and accountants, university lecturers and advanced accounting students so that there was a wide enough cross-section of the relevant people who will influence reports, now and in the future.

The one criticism, not qf the seminar though, was that more representative from company management should have attended, and also directors. No matter what the former group may decide, it is the decision of the board which finally determines what the shareholder and analyst receives. Central Theme

The seminar, organised by the departments of accountancy and extension studies of the University of Canterbury, had as its central theme a paper delivered by Professor Maurice Moonitz, professor of accountancy at the University of California, Berkeley, and a former director of research for the American Institute of Certified Public Accountants—a person who represents both the academic and practising areas of accountancy. Papers were then presented by Professor T. R. Johnston, professor of accountancy at the University of Auckland, Mr J. B. Hindin, a sharebroker and analyst from Christchurch, and Mr A. W. Mann, a public accountant in Christchurch. Groups discussed matters raised in the papers, and on Friday afternoon presented their conclusions. General Agreement Probably the most significant point arising from the discussion groups was the general agreement by practising .accountants, secretaries or managers, university staff or students, that changes similar to those outlined in Professor Moonitz's paper could be initiated, although in different forms to suit different occasions.

Professor Moonitz's paper, part of which was printed in “The Press” on Saturday, was designed to direct attention to the problems facing the future of external financial reporting. These, broadly, were changes and departures from historical cost, the form of financial reports and development or standards and widening of auditors’ duties. This latter problem—the scope of auditors’ duties—arose frequently during discussion, which suggests that future improvements in company reporting will to a large extent involve auditing practices and principles. The field in which the auditor might be more directly involved seems to be that of management. Main Problem Arising from the conclusions also were a number of problems, the main one being

this and other attitudes they were formed by e some influence in the ng.

how such an improvement in financial reporting could be policed. It appears that in practice and in principle there is no easy solution. Certainly requirements through the Companies Act -did not seem to be the most desirable means which largely leaves the problem in the hands of individual boards and management. The possibilities of getting the extra data for the reports did not present such a hurdle; most of the information had already been collected by management, as some pointed out. Each of the three papers delivered after the address by Professor M< onitz to some extent represented the thoughts of the different groups who influence financial reports—the universities, the practising accountants and the analysts. Professor Johnston discussed the legal aspects of implementing changes for better reporting but believed that the chances of adoption of radical change in New Zealand were little, except with leading companies. Changes Wanted Mr Hindin presented three main requirements which he would like to see in external financial reports. These were:— Honesty of presentation, even the imperfect presentation known at present; Consistent and frequent reporting and an improvement in the standards of auditing and, once this had been achieved; Supplementary statements to present additional information which would tell the effect of changes in the price level and other matters brought up in Professor Moonitz’s paper. "I certainly agree that there is scope for improvement in the technique of financial reporting.” he said. “This is less important than tackling the failing of present financial reporting at its very root, and this involves the basic honesty of the statements themselves. “It also involves the integrity of the managements and boards in the sense of their recognising their stewardship role on behalf of the shareholders who own the business and their consequent accountability to those shareholders and to others who depend on the information given to them. “I should hasten 1o say that in a great many cases companies are headed by managers and directors who recognise their responsibilities and do their best to give an honest account of their function. But on the other hand there are many who consider it a nuisance to have to report at all, let alone im-1 prove the usefulness of the [

reports they are compelled by law to issue.

Improvement

"To me, the most important immediate improvement in financial reporting would be firstly, greater honesty in presentation so that I oould get the feeling that the directors were communicating to me what they honestly thought of the result of the company's operations rather than that they were putting me off with the basic minimum they thought they could get away with under the Companies Act,” said Hindin. “I would want greater frequency of reporting. In this country and in Australia the usual frequency of reporting is once a year in full, and an interim statement in between which quite often goes no further than to say that sales and profits are satisfactory and the outlook is satisfactory, whatever that may mean. Interim Reports “I have seen many cases of optimistic interim reports followed by end of year results where it was quite obvious that deterioration had set in long before the interim statement. “The presumption is either that the board did not know what was going on or else that it did not desire to disclose a downturn, and hoped that the next six months would recover the situation. “I have seen examples of the public enthusiastically taking up a new issue of shares on the strength of a company’s interim report only to be utterly bewildered by the end of the year’s results and the passing of the dividend. “I am pleased to see an increasing number of companies which are making greater effort at meaningful communication in the presentation of their interim reports, but I feel that nothing less than fully audited accounts should be required with a directors’ report every six months,” he said. Future Projections Mr Mann said he agreed with all Professor Moonitz said about combining the past, present and future, but considered that incorporation of the future into external account reporting would lead to confusion. “Financial statements as described are of course of vital importance to company management and boards of directors, but I submit that shareholders are interested in what has happened and not what was expected to happen. "They are also interested in th? future, but I question either that conjecture about it or plans which may well have not progressed beyond the stage of general principles and intentions for future adoption should be incorporated into an articulated set of accounts. Chairman's Letter "I applaud discussion of the future in a chairman’s

address at the annual meeting. Both forms seem to be increasing, and I think enable a shareholder to make an appraisal without confusing himself with the facts of the present or what has happened,” said Mr Mann. “I agree then that we can combine future projections and past results—we do this now for management—that a firm should reveal data about the future and that accountants should take responsibility for this—but not in a form which complicates accounts dealing with the facts of the past.”