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Financial Times: Urgent – we need much simpler and shorter financial statements

Published: January 21 2008 02:00 | Last updated: January 21 2008 02:00

From Prof D. R. Myddelton.

Sir, Jennifer Hughes reports (January 14) that the heads of the six largest accounting firms are calling for more freedom for people to use their own judgment in preparing and auditing company accounts, instead of having to follow highly restrictive and complex regulations. The latest UK Companies Act weighs in at more than 700 A4 pages, in addition to more than 2,000 pages of accounting standards. So it is high time that the leaders of our profession paused to consider where the modern tendency to over-regulate has got us.

The driver seems to have been a vain hope of achieving “comparability” between the accounts of different companies in different industries in different countries; but that is a will o’ the wisp. Far better to try to give “a true and fair view” of the financial position and performance of particular individual companies on a consistent basis over time.

Unfortunately, standard-setters do not seem to listen very well. When the leaders of the six (then) largest accounting firms responded very critically to the draft “Statement of Principles” more than 10 years ago, the UK Accounting Standards Board took hardly any notice; so little, indeed, that Ernst & Young did not bother to comment in detail on the “new” proposals, but simply sent the ASB another copy of their earlier letter! And “our” standard-setters are still trying to organise a global monopoly with the Americans, whose approach to regulation is even worse than ours.

We must throw off the shackles before it is too late! We need much simpler, much shorter financial statements. And we should stop pretending that annual company accounts can be anything more than a very rough interim guide to financial performance and position. The latest (2006) annual reports of three large well-respected companies – British American Tobacco, GlaxoSmithKline and Royal Dutch Shell – contain 148, 188 and 232 pages respectively. The idea that any ordinary shareholder could use them to help “make decisions” is ludicrous.

D. R. Myddelton,
Emeritus Professor of Finance and Accounting,
Cranfield School of Management,
Cranfield, Bedford MK43 0AL

Copyright The Financial Times Limited 2008

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