Heads of the world’s six largest accounting firms have called for a
radical overhaul of the global financial accounting system to take
greater account of social and environmental factors.
In an unprecedented 24-page statement made last month, the chief
executives of the firms – BDO International, Deloitte, Ernst &
Young, Grant Thornton, KPMG and PricewaterhouseCoopers – say the
present financial accounting regime is in danger of becoming irrelevant
because it largely ignores extra-financial indicators of a company’s
health.
They say the accounting profession’s short-term priority must be urgent
financial reporting issues such as the differences between US and
international reporting standards, but argue that in the longer run
‘current systems of reporting and auditing company information will
need to change toward the public release of more non-financial
information customized to the user’.
They say there is a ‘range of intangibles that are not well measured or
not measured at all’ under current accounting conventions, but which,
like ‘the proverbial canary in the mineshaft’, could play a valuable
role as forward-looking performance indicators.
The six are to organize roundtables in the US next year to clarify what
kinds of non-financial information all interested parties want
companies to publish.
The statement has been welcomed by AccountAbility, which has played an
important part in the development of social auditing and is one of the
leading bodies in the field. However, its chief executive Simon Zadek
warned that financial accountants should not try to go it alone, and
instead ought to work closely with the increasing number of social
auditors.
‘The evidence is that financial accountants and auditors, left to
themselves, are unlikely to resolve the problem they have highlighted
and been party in creating,’ he said. ‘Robust innovations require a
more diverse array of expertise and interests’. He said the big
accountancy organizations should ‘allow others to become active in
rewriting the rule book on financial reporting’.
The statement has been a year in the making, and emerged from a
symposium of the big six in Paris last month to discuss how to restore
confidence in global accounting in the wake of the corporate scandals
that began with Enron’s collapse in 2001.
The chief executives say they want their profession to prepare itself
for what could be the biggest shake-up of accounting practices since
the 1930s.
‘We all believe the current model is broken,’ said Mike Rake, chairman
of KPMG International, who is also chairman of Business in the
Community. ‘In the next five years you may see a lot of change in this
area.’
