From the President.Phil Livingston At FEI's recent financial reporting conference in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , Paul Volcker gave the keynote address keynote address n. An opening address, as at a political convention, that outlines the issues to be considered. Also called keynote speech. Noun 1. and declared that the accounting and auditing profession were in a "state of crisis." Earlier that morning, over breakfast, he lamented la·ment·ed adj. Mourned for: our late lamented president. la·ment  ed·ly adv. the daily bombardment of
financial reporting failures in the press.
I agree with his assessment. The causes and contributing factors are numerous, but one thing is clear: We as financial executives need to do better, be stronger and take the lead in restoring the credibility of financial reporting and preserving the capital markets. If you didn't already know it and believe it deeply, recent cases prove the value of a financial management team that is ethical, credible and clear in its communications. A loss of confidence in that team can be a fatal blow, not just to the individuals, but to the company or institution that entrusts its assets to their stewardship. I think the FEI FEI Fédération Équestre Internationale. Code of Ethical Conduct says it best, and it is worth reprinting re·print n. 1. Something that has been printed again, especially: a. A new printing that is identical to an original; a reimpression. b. A separately printed excerpt; an offprint. 2. the opening section here. The full code (signed by all FEI members) can be found at www.fei.org/info/code.cfm. FEI's mission includes significant efforts to promote ethical conduct in the practice of financial management throughout the world. Senior financial officers hold an important and elevated role in corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. . While a member of the management team, they are uniquely capable and empowered to ensure that all stakeholders' interests are appropriately balanced, protected and preserved. This code provides principles which members are expected to adhere to adhere to verb 1. follow, keep, maintain, respect, observe, be true, fulfil, obey, heed, keep to, abide by, be loyal, mind, be constant, be faithful 2. and advocate. They embody rules regarding individual and peer responsibilities as well as responsibilities to employers, the public, and other stakeholders Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. . All members of FEI will: 1. Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships. 2. Provide constituents with information that is accurate, complete, objective and relevant. So how did the profession reach the state Volcker describes as a crisis? * The market pressure for corporate performance has increased dramatically over the last 10 years. That pressure has produced better results for shareholders, but also a higher fatality rate fa·tal·i·ty rate n. See death rate. fatality rate see case fatality rate. as management teams pressed too hard at the margin. * The standard-setters floundered in the issue de jour quagmire, writing hugely complicated standards that were unintelligible UNINTELLIGIBLE. That which cannot be understood. 2. When a law, a contract, or will, is unintelligible, it has no effect whatever. Vide Construction, and the authorities there referred to. and irrelevant to the bigger problems. * The SEC fiddled while the dot-com bubble Refers to the late 1990s during which countless Internet companies were riding an enormous wave of enthusiasm that pushed their stock valuations into the stratosphere even though they never made a penny. burst. Deriding and undermining management teams and the auditors, the past administration made a joke of financial restatements. * We've had no vision for the future of financial reporting. Annual reports, 10Ks and 10Qs are obsolete. Bloomberg and Yahoo! Finance have replaced the horse-and-buggy vehicles with summary financial information linked to breaking news. * We've had no vision for the future of accounting. Today's mixed model is criticized one day for recognizing unrealized fair value contractual gains and alternatively for not recognizing the fair value of financial instruments. * The auditors dropped their required skeptical attitude and embraced business partnering philosophies. Adding value and justifying the audit fees became the mandate. Management teams and audit committees promoted this, too. * Audit committees have not kept up with the challenges of the assignment. True financial reporting experts are needed on these committees, not the general management expertise required by the stock exchange rules. The problem clearly rests with all parties. But financial executives are the front line and by far the most responsible party for protecting and enhancing the shareholders' investment. We recognize it already. The auditors are nothing but a backstop -- and one with a large and frayed mesh. We have to do better on the front line, and we have to work closely with the new team in Washington to get off the old tracks and onto to a more positive and proactive path to a modern reporting and accounting model. This is not a 10-year project. It needs to happen quickly. |
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