Baylor University Roundtable On Integrity In Financial Reporting.pptx

Baylor University Roundtable on Integrity in Financial Reporting

Co-Moderator and Panelist Co-Moderator: • Bill Thomas (Professor of Accounting here at Baylor’s Hankamer School of Business) • John Martin (Professor of Finance) Panelist: • ROBERT ALSPAUGH (Chief Executive Officer of KPMG International) • STUART GILLAN (Assistant Professor of Finance at the University of Delaware’s College of Business and Economics) • WILLIAM KINNEY (University of Texas at Austin) • CHARLES NIEMEIER (Chief Accountant for the enforcement division of the U.S. Securities and Exchange Commission in Washington, D.C.) • WILLIAM POLLARD (Chairman of the Board of The ServiceMaster Company) • BENNETT STEWART (Senior Managing Partner of Stern Stewart & Co.)

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Does Financial Reporting Matter? Crisis in corporate governace? Changes in accounting The case for accounting reform More on accounting Toward a solution The challenge of complexity The promise of sarbanes-oxley

Does Financial Reporting Matter? financial reporting becomes a key element in the overall process of U.S. corporate governance. It is an important part of the process by which management communicates with all its key stakeholders, including of course its shareholders.

Crisis in corporate governace? • The role of board directors • Financial reporting failures • Overinvestment

Changes in accounting • Reputational risk • Separate function of risk assessment and revenue production

The case for accounting reform • the failure of accounting to count what counts and provide a meaningful measure of value • Conflicts between finance and accounting

More on accounting • GAAP accounting often fails to provide a useful guide to managerial decision-making.

Toward a solution • instill in people a stronger morality, a greater sense of fairness and ethics. • need a well-crafted set of laws, together with vigorous enforcement of those laws, as a deterrent to fraud. • provide better disclosure • Design institutions and incentives to encourage the kind of behavior that we want. • break the chain that now forces corporate leaders to meet the quarter-by-quarter expectations of sellside analysts— and to report good news all the time. • The board should hold management’s feet to the fire and maintain a focus on long-term shareholder value—not quarterly earnings targets.

The challenge of complexity • having the necessary training and expertise for a given assignment is clearly an essential part of dealing with a very complex world. • must learn about GAAP—and they should know something about detecting material misappropriation fraud by employees and misrepresentation fraud by management. • auditors can’t use their full set of skills • “monitoring their own partners” • the board of directors • the market itself is also beginning to improve corporate governance with some promising innovations

The promise of sarbanes-oxley • the development of the new Public Company Accounting Oversight Board. • Strengthening of the authority of the audit committee to appoint the external auditors • Companies that might have gone public will now choose not to—and companies that are now public may tend to go private • Convince Congress to depoliticize the process of setting accounting standards, and to resist the temptation to intervene with short-term and partial fixes under pressure.