The collapse of American investment bank Lehman Brothers in September 2008 helped kick off the global financial crisis, the effects of which are still being felt in a number of countries today.
Influential figures of the accounting industry have shared their views on the collapse, including why integrated reporting (IR) will help ensure greater financial stability in the future.
This is the third and final installment in a series of articles looking at the effects of the Lehman Brothers’ failure into the accounting profession.
A wake-up call for integrated reporting
Peter Simons, technical specialist at the Chartered Institute of Management Accountants (CIMA) says "a reaction to the sudden and unexpected nature of the crash was that there should be a better risk management and more transparency in reporting to better inform stakeholders," following the banks demise.
He adds: "it has become clear that investors, regulators and other stakeholders require more integrated reporting to better understand a company’s performance, position and prospects."
At the Association of Chartered Certified Accountants (ACCA), technical director Sue Almond agrees, and described the financial crisis as "a wake-up call," adding that the financial crisis meant "everyone, not just the profession, had to take a hard look at what needed to change to guard against this happening again."
CIMA head of corporate reporting policy Nick Topazio says the value of a company is not only determined "by the assets recorded in its balance sheet, but also by these other forms of capital."
Topazio says that it’s precisely in this context where the IR initiative has grown over the past five years. He thinks traditional reporting focus did not take account of value added factors that are hard to account for, such as "as employee loyalty and motivation, "free" natural resources, and relationships with customers, suppliers, business partners, and local communities," he explains.
The way forward
IR assesses a company’s ability to create value in the short, medium and long term communication.
For CPA Australia chief executive Alex Malley, this represents "a significant step forward in better, more holistic communication about business’ activities and value."
According to ACCA’s Almond, the benefits of long-term business sustainability, with less emphasis on short-term profits, is an issue of the highest importance.
Almond says the move to IR is having an effect on how accountants operate and at a general level "we have seen the profession take on a more business-strategic role in its outlook, being more alert to risk and its impact on business strategy.
"ACCA’s own members are telling us what specific risks businesses face on a short, medium and long term basis, and developments such as IR and the general increased emphasis on non-financial reporting focus on providing a broader, more complete picture of the business."
According to CIMA’s Simons, the move to IR is making the role of management accountants even more important in the relationship between stakeholders and a company’s report.
He says it will "require more transparency in reporting, bringing statutory reporting closer to the domain of the management accountant in providing management information. So, management accountants have an increasingly important role to play in informing both management and stakeholders’ decisions."
For CIMAs’ Topazio proponents of IR believe that it will underpin both financial stability and business sustainability leading to a more resilient global economy.
"Also the process of better articulating their ‘value story’ should result in a better understanding within businesses of how their business model operates and how it can be made more durable and successful in the long term," he says.
CPA Australia’s Malley is clearly one of these proponents, and argues that "it can have a profound effect on the profession, but more importantly on business and market ideologies and management of risk."
Profession rides out the storm after Lehman Brothers
Lehman Brothers, a wake-up call for the profession