Out of whack.

Recently, I received a financial summary of my RRSP and pension plan investments -- both on the same day, in fact. Not being a seasoned investor who has had a lot of experience with the ups and downs of the stock market, I found myself gasping at what seemed like a very big negative sign before the one-year rate of return. But, really, what was I to expect? I took a deep breath and reminded myself that I'm in this for the long haul, not the short run, and that everything -- and that means everything -- is cyclical. Do I feel better? A little, maybe.

While the continuing volatility in equity markets makes me, the inexperienced investor, a little squeamish, I can only imagine how those who play the markets seriously (and wholeheartedly) must feel. And to add pain to misery, there is the issue of financial statements and the question of how accurately they reflect the true financial health of the companies in which these investors are shareholders. The problem with the reporting on financial statements stems from the fact that public companies in Canada are permitted to report in Canadian generally accepted accounting principles (GAAP), American GAAP or both. This can account for the big differences an investor might observe in revenue, income, net assets and equity. Despite the differences between American and Canadian GAAP, there is also the question of whether the traditional principles of GAAP are even a relevant indicator of how a company creates, optimizes and deploys value in the new economy.

"Today's volatility in the capital markets is directly related to a lack of proper new economy standards, standards that are needed to value both old and new economy companies and to measure their periodic performance," says PricewaterhouseCooper's Dennis Grimm, author of this month's Management trends column (Reporting Value in the New Economy, pg.10). "Until such standards are developed and adopted, the daily guessing -- as it relates to our stock markets -- will continue and volatility will reign supreme." Grimm goes on to say that the solution is to furnish the market with more and better financial and non-financial information, and that the e-business transformation of financial reporting will help companies do just that.

Many are familiar with extensible markup language (XML), the most recent standard language of electronic document and data exchange (see Becoming Port of the E-Generation and This Little Company went to the E-Market in the June issue of CMA Management). XML is now being applied to corporate reporting and goes by the name extensible business reporting language (XBRL). The initial goal of XBRL is to provide an XML-based framework that the global business information supply chain will use. "These technologies will allow corporations to disseminate financial and non-financial information at Internet speed in a format that will allow users to evaluate, compare and analyze this information," says Grimm. And, hopefully, investors will be all the wiser.

Kristin Doucet

Editor-in-Chief