Public Dialogue Tour: Chicago
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More is not necessarily better when it comes to financial reporting, according to participants at a Center for Audit Quality forum in Chicago.
Investors, corporate executives, academics and auditors at the Chicago event agreed that financial reporting has improved dramatically since the financial scandals in the late 1990s. But they also acknowledged the difficulty of providing meaningful information to a broad range of investors.
“Business is complicated, and it’s going to get more complicated as the world gets to be smaller place,” said Edward Liddy, chairman of The Allstate Corp.
The gathering at The Chicago Club was the sixth stop in the CAQ’s planned 10-city public dialogue tour. Audience members interacted with a panel of experts comprised of Liddy, Illinois Attorney General Lisa Madigan; David Ruder, the former chairman of the Securities and Exchange Commission; and investor Charlie Bobrinskoy, vice chairman of Ariel Capital Management.
Cindy Fornelli, the CAQ’s executive director, said the dialogue tour has already produced valuable insights into the needs of investors. The CAQ will make formal recommendations on ways to improve public company audits and financial reporting after the tour ends in the spring.
“Investors want better information. Better doesn’t necessarily mean more,” Fornelli told an audience of more than 50 investors, corporate executives, regulators and public company auditors. “They want quality over quantity.”
Forum participants offered ideas on how to meet needs of investors with various levels of sophistication, from investment professionals and casual investors with minimal knowledge of the capital markets.
David Vitale, a board member for UAL Corp., suggested that the law of supply-and-demand would help investors find the right kind of information for them.
“As long as there is enough information, there’s a market for simplifying it and providing it other kinds of users,” Vitale said. “There’s a whole marketplace out there that’s taking information and repackaging it.”
Attorney General Madigan suggested that the internet could help, as long as the vast amount of information doesn’t overwhelm investors.
“The key to modernization is the internet, in terms of financial and business reporting,” she said.
Ruder cautioned that the emergence of Extensible Business Reporting Language (XBRL), a system of standards that is intended to promote uniformity, will probably not help average investors.
“It is a wave of the future, but it’s not going to be, in my opinion, directed at the small investor,” Ruder said. “It’s going to be very, very complicated, requiring professionals to understand.”
Forum participants agreed that financial reporting and internal controls have improved dramatically since the financial scandals of the late 1990s.
Teri Valentine, director of audit for Motorola, Inc., said corporate executives are realizing that everyone at a public company has a stake in ensuring the integrity of the financial reporting process.
“That’s something that is absolutely happening,’’ she said.
Turning to the role of auditors, forum participants agreed that some investors have unrealistic expectations that auditors can uncover every instance of fraud. They also agreed that auditors play a vital role in maintaining public confidence in capital markets.
Speaking from an investor’s perspective, Bobrinskoy compared auditors to police officers.
“My analogy would be the policeman, who obviously cannot stop every burglary in a neighborhood, but whose presence scares away burglars,” he said.
Fornelli said future events in public dialogue tour would increasingly focus on solutions.
