Corporate financial reporting has its fingers all through the economy, which makes the whole economy work more efficiently. Today companies are required to report essential financial information to the public, and this information benefits the entire society.
Sidney Davidson Distinguished Service Professor of Accounting, Ray Ball, from the University of Chicago says, ‘Everyone from owners of shares to consumers, suppliers and clients benefit from corporate financial reporting as they learn more about the company through this information and can make better choices concerning the company’.
Professor Ball is a pioneer in the area of corporate financial reporting and a co-author of a famous research paper published in 1968, which revolutionised the understanding of the impact of corporate disclosure on share prices.
Trends go towards professional investors
Companies are getting larger and more complex, and the financial statements are nowadays very long documents, often with more than 100 pages and thousands of numbers. This means considerable compliance costs for the companies, and there is a possibility that only professionals can process all this information.
‘The clients for corporate financial reporting range from mums and dads to professional investors, and to a large degree, the trend has been towards the latter. Certainly, a large number of people have decided that they can rely upon the experts and how they price shares, and just put their money in some passively managed investment vehicle, such as index funds. I am not sure whether these trends are good or bad, but I doubt that they can be reversed’, Professor Ray Ball says.
‘In many countries, there are companies that have ceased to be public, meaning that they do not have to make the obligations of corporate financial reporting. And for public companies, there have been trends for individual consumers to stop owning shares and to own them through intermediaries like investment vehicles, so professional investors are beginning to dominate the markets.’
Challenges for future accountants
Professor Ray Ball mentions Artificial Intelligence (AI) and balancing between global and local issues as the key challenges that the changing reporting environment brings to financial reporting and future accountants.
‘Keeping up with changes in areas like AI is going to be a big issue, and I believe there will be more and more decision making based upon costly software. Another big challenge is that the world has backed off from the globalisation enthusiasm that was present when the international financial reporting standards were introduced in 2005, so I think balancing global issues and local issues are going to be a challenging issue for accounting professionals over time’, Professor Ray Ball continues.
‘The coming generations of students also need to take into consideration that there is increased stress upon social issues as distinct from financial issues, and the accounting profession is going to have to decide whether or not it makes a significant commitment to the auditing of the environmental, social and governance disclosures.’
Professor Ball made the keynote speech at the seminar Big Unanswered Questions in Financial Reporting, organised on October 9, 2019, by the School of Business and the Finnish Patent and Registration Office. The seminar also included a panel discussion with international level panellists Paul Koster, Managing Director at the Dutch Shareholders’ Association VEB, and Christian Savtschenko, Partner of PwC Finland. Professor Lasse Niemi and Assistant Professor Henry Jarva from the Department of Accounting hosted the seminar.