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Thursday, November 09, 2006

Corporate Accounting & Changing World

Six major firms — among them PWC, Ernst & Young and Deloitte & Touche — say the corporate financial reporting system is bust. They say it delivers a lot of dense, impenetrable information without giving the full picture of a company's performance. Quarterly information disclosed are pass’e. The crux of the recommendation is that alongside standard information like earnings, sales and cash flow, it should be mandated that companies disclose nonfinancial data – after all in today’s connected world, information flows quite fast . Bringing tangibility to traditional intangibility seems to be the goal here. In a way, earnings call provide opportunities to get such information – but sometime, big companies do not expose the key management executives even in such occasions. Even common financial measures are classified as non-mandatrory disclosures today. Many progressive enterprises today do report key performance measures – only thing is these need to be reported in a standardized way. For example, the ARPU factor of telecom service providers, employee turnover/addition for consulting firms, the load factor of airlines, the inventory turns for process industries – in other words the top 10/15 critical measures that a CEO is expected to monitor – but to be reported in a standardized way. Obviously we need to have vertical/geography specific add-ons/flavours. After all stakeholder valuations are based on assessment centered around a set of such factors.

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