ACCA finds trust is casualty of financial crisis

Trust has been a casualty of the financial crisis, according to the Association of Chartered Certified Accountants (ACCA) which found that two thirds of investors are sceptical about the information companies provide.

The results emerged from a survey of 300 investors from Britain and Ireland for ACCA’s Understanding Investors’ directions for corporate reporting which found that investors believe that managers have too much discretion over the financial numbers they report. The survey found that investors place more weight in what the media say about companies then what the companies themselves say. Nearly half of investors said that annual reports were of no use.

Head of ACCA Ireland Liz Hughes said that action was needed to rebuild trust in company statements. “Accounting standard setters and regulators should be worried about the high percentage of investors who see no use to annual reports and the distrust of management discretion over company figures.”

She added that decline in trust needed to be stemmed and perhaps the most effective method to do so would be to increase the number of audits. “This research shows there has been a shift in what investors want in terms of financial information since the economic downturn. The decline in trust in corporate information since the global financial crisis suggests there is a bigger role for audit to play in rebuilding confidence in company statements.”

Although there have been moves to increase financial reporting by forcing companies to report quarterly, investors were not unanimous in their support for this with 65% believing that it created short-term volatility and distracted company management, almost half of investors wanted to see it scrapped

“The quarterly reporting issue shows just how fragmented views can be. Even individual investors are torn both ways — they want to consume quarterly reporting for their own self-interest, they also recognise that this focus on shortening time horizons is damaging for the overall market’s long-term interests. There is a desire for regular reporting, but investors are aware of the outcome of that kind of financial information environment.”