CFA Institute
Corporate Disclosure Policy Council
Financial Accounting Standards Board
October 31, 2013
Agenda
 CFA Institute –
− History & Membership Profile
− Mission, Strategy & Advocacy Efforts
− Understanding Our Valuation Philosophy & Our Position Development
(Comprehensive Business Reporting Model)
 Engaging Effectively with Investors and Users –
− Investors & Users –
− Who are they?
− What drives their financial reporting agenda?
− Importance of Reporting Objective & Investor Focus
− Communicating with Investors
2
CFA Institute –
History & Membership Profile
3
CFA Institute –
History (Benjamin Graham)
CFA Institute’s history is rooted in:
- the views of the father of modern security
analysis, Benjamin Graham, who believed
in an intrinsic or fundamental valuation
approach.
- the post depression era reforms of the U.S.
Securities Act of 1933 & 1934 which
changed the availability & transparency of
information to investors.
“The analyst who qualifies for the rating will have the
obvious advantages of prestige, improved ability to
get a job, and the chance for higher pay. In addition,
he is likely to develop a more professional attitude
towards his work and a keener interest in
maintaining and advancing the standards of his
calling.”
Benjamin Graham,
The first edition of the Analysts Journal, 1945
4
CFA Institute –
History (Professional Designation for Analysts)
– Availability of Information – As more information on companies became available in
wake of Depression-era financial reforms the nature of work of analysts was changing from
“statistician” to “financial analyst”.
– Need for Analysis and Security Selection as a Profession –
 The “Dean of Wall Street” and proponent of fundamental analysis was first to
advocate need for professional certification of analysts.
 Guided by his urging industry leaders worked to making his idea a reality.
 More than 20 years were needed for this conversation to come to a fruitful conclusion.
– Emergence of CFA Program –
 CFA Program developed in 1962 (professional organization founded 1947).
 First exam given in 1963.
 The certification encompasses values of professional excellence, ethics, respect and
building an investment industry that serves the interests of investors and society.
 Ethics and Professional Standards have always been an important component and
are tested at all levels.
5
CFA Institute –
History (Organizational Evolution)
1947
1961
National
Federation of
Financial
Analysts
Societies
(NFFAS)
Financial
Analysts
Federation
(FAF)
1962
Institute of
Chartered
Financial
Analysts
(ICFA)
Name Change
2004
1990
CFA Institute
Association for
Investment
Management &
Research
(AIMR)
Name Change
Merger
FAF & ICFA
6
1967 New York
1961 Charlottesville
2009 Brussels
2001 London
1997 Hong Kong
7
CFA Institute –
Global Membership Growth
111,079
117,161
105,889
101,140
73,960
43,043
17,880
1990
21,330
1995
2000
2005
2010
Data provided in five-year increments from 1990 to 2010.
2011
2012
2013
Annual data.
8
CFA Institute –
Global Membership Regional Composition
1.3%
0.7%
10.0%
3.3%
2.0%
12.3%
0.7%
1.0%
1.0%
1.1%
6.6%
4.8%
11.8%
14.7%
15.3%
16.1%
16.7%
12.7%
10.9%
17.5%
18.2%
18.5%
19.1%
12.5%
12.5%
12.4%
12.4%
54.3%
53.1%
51.9%
50.7%
2010
2011
2012
2013
13.5%
87.8%
81.9%
Membership
Totals: 17,880
Non-US
49.3%
75.4%
63.2%
Years: 1990
1.1%
1995
2000
2005
21,330
43,043
73,960
North America (excluding Canada)
101,140
105,889
111,079
117,161
Axis Title
Canada
Europe, Africa, Middle East
Asia Pacific
Latin America & Caribbean
9
CFA Institute –
Global Candidate Growth
219,642
209,945
212,129
200,113
111,105
70,090
16,390
19,910
1990
1995
2000
2005
2010
Data provided in five-year increments from 1990 to 2010.
2011
2012
2013
Annual Data
10
CFA Institute –
Global Candidate Regional Composition
1%
1%
12%
15%
4%
14%
1%
24%
5%
1%
2%
2%
2%
1%
41%
43%
44%
44%
32%
15%
15%
13%
Non-US
9%
69%
64%
47%
Years:
1993
Candidate Totals: 16,390
74%
19%
22%
21%
21%
21%
8%
8%
8%
8%
27%
26%
25%
24%
38%
1995
2000
2005
2010
2011
2012
2013
19,910
70,090
111,105
200,113
209,945
219,642
212,129
North America (excluding Canada)
Europe, Africa, Middle East
Latin America & Caribbean
Canada
Asia Pacific
Note: Candidates are
classified by address.
If classified by passport,
Asia Pacific would
represent approximately
10% greater portion of
candidates.
11
CFA Institute –
Occupation & Employer Profile of Global Membership
Occupation
% of Membership
Top Twenty Employers
Charterholders
Portfolio Managers
22%
Bank of America Merrill Lynch
1,564
Research Analyst
15%
UBS
1,467
JP Morgan Chase
1,422
Analyst
24%
Corporate Financial Analyst
5%
Investment Banking Analyst
4%
RBC
1,112
Chief Executive Officer
7%
HSBC
1,064
Consultant
6%
Risk Manager
5%
Financial Advisors & Private Bankers
5%
Relationship Manager
5%
Accountant/Auditor
3%
Other
23%
Total
100%
Wells Fargo
999
Credit Suisse
968
Citigroup
925
Morgan Stanley Smith Barney
910
Deutsche Bank
898
Goldman Sachs
880
BlackRock
800
Barclays
789
TD Bank Financial Group
741
BMO Financial Group
695
PricewaterhouseCoopers
672
FMR Corporation
643
Allianz SE
639
ING Group
538
CIBC World Markets Inc.
531
Top 20 employers
represent nearly
17% of all
charterholders
12
CFA Institute –
Mission, Strategy & Advocacy Efforts
13
CFA Institute –
Mission, Strategy & Advocacy Efforts
14
CFA Institute’s Education Objective –
CFA Program (Candidate Body of Knowledge)
15
CFA Institute’s Education Objective –
CFA Program (Candidate Body of Knowledge)
Topic Area
Ethical & Professional Standards
Level I
Level 2
15%
10%
Level 3
10%
Investment Tools
Corporate Finance
Economics
Financial Reporting and Analysis
Quantitative Methods
50% 30%-60%
0%
Asset Classes
Alternative Investments
Derivatives
Equity Investments
Fixed Income
30% 35%-75%
25%-65%
5% 5%-15%
100%
100%
45%-55%
100%
Portfolio Management and Wealth Planning
Total
16
CFA Institute’s Education Objective –
CFA Program (Pass Rates & Experience Requirements)
Exam Pass Rates:
June 2012
Actual
10-Year
Average
Level I*
38%
38%
Level II†
42%
43%
Level III†
52%
55%
* - Level 1 offered in June and December (first December administration was in 2003)
† - Levels II and III administered in June only
Experience Requirement: 4 Years of Qualifying Work Experience
Necessary to be Recommended for Membership.
17
CFA Program –
Financial Reporting and Analysis: Accounting Basis
Accounting
Basis:
IFRS with
Reference to
U.S. GAAP
18
CFA Institute’s Advocacy Objective –
Standards & Financial Market Integrity (SFMI) Division
Standards & Financial Market Integrity (SFMI) Division
 Advocacy & investor representation occurs through the SFMI division.
 Including predecessor organizations, CFA Institute has over 40 years experience
advocating for financial market integrity and transparency.
 SFMI Division (previously known as the CFA Centre for Financial Market Integrity) was
formed in 2004 as the policy and research group to address global capital market
issues.
Capital
Markets
Policy
Financial
Reporting
Policy
Promote fair and open
markets, investor protections,
and professional standards.
Advocate for improved
financial reporting so
investors receive transparent
and consistent information
upon which to make
investment decisions.
Advocate for integrity in the
capital markets through high
quality corporate governance
and shareholder rights.
Investment
Performance
Standards
Set and maintain standards
for investment performance
reporting.
Global Investment
Performance Standards
(GIPS).
Standards
of
Practice
Establishes the ethical and
professional conduct
requirements for CFA
charterholders.
The team also promotes these
principles to the broader
investment community through
the adoption of voluntary
standards and best practice
guides for asset management
firms and trustees of pensions
and endowments.
19
CFA Institute’s Advocacy Objective –
Financial Reporting Policy Group
Content
Advocacy & Outreach
Thought Leadership
Awareness
 User Perspectives on IFRS 7 Risk Disclosures
 Disclosure Framework
 Media & Press Mentions
 Articles & Publications , Issue Briefs
 Webcasts, Podcasts, Blog Posts
 Presentations/Speaking Engagements
Technical Information &
Comment Letters
Engagement
 IASB
 FASB
 SEC
 PCAOB
 IAASB
 Participation on Advisory Committees &
Roundtables
 CDPC Meetings with Standard Setters
 Member Surveys
20
CFA Institute’s Advocacy Objective –
Financial Reporting Policy Group
How Do We Develop Our Positions?
Position
CFA Institute Staff
Corporate Disclosure Policy Council
Surveys / Working Groups / Direct Outreach
Members
21
CFA Institute’s Advocacy Objective –
Financial Reporting Policy Group
– Engagement with Members –

Member Surveys – We have conducted multiple comprehensive surveys of members’ views on key financial reporting
issues (e.g. Fair Value Application, Disclosure Framework, U.S. Adoption of IFRS, Segment Reporting and
Financial Statement Presentation).

Dedicated Financial Reporting Survey Pool – So as to cast as broad, but as relevant, a net as possible on matters of
interest, our survey pool on most financial reporting matters is generally comprised of 15,000 to 20,000 members

Member Webcasts – Webcasts to members (e.g. IFRS 9, U.S. Adoption of IFRS, Financial Instruments, IFRS Agenda
and Revenue Recognition)

Other Member Outreach – Engagement with member societies (e.g. UK, Germany, Canada, France) and specialist
working groups (e.g. Insurance Working Group).

Broadening Investor Network – Actively expanding investor outreach across key jurisdictions.
– Engagement with Other Investors – Ongoing engagement with other investor organizations (e.g. CRUF, CII, EFFAS and
Japanese Society of Financial Analysts).
– Engagement with Corporate Disclosure Policy Council (CDPC) – CDPC is comprised of 10+ global practicing investment
professional and accounting expert members. CDPC provides investor oriented advisory input to our positions.
– Engagement with Key Regulatory Bodies –

SEC, FASB, EFRAG , European Commission, Financial Stability Board.

Center for Audit Quality, IAASB, PCAOB.
– Body of Knowledge – Through such engagement we formed a body of knowledge and our positions.
22
CFA Institute’s Advocacy Objective –
Financial Reporting Policy Group
Myths
Realities
CFA Institute views are academic or purist in their
approach.
CFA Institute’s views are grounded in a solid
conceptual framework that is documented and
has been consistent over time.
CFA Institute views will destroy economic value or
are not consistent with economic reality.
CFA Institute’s views are developed from an
economic perspective and seek to appropriately
reflect economic events in financial reporting.
CFA Institute views are pro-cyclical.
Financial reporting seeks to portray events.
Simply reflecting values currently being
transacted at does not create the transaction
price.
“Real investors” don’t agree with CFA Institute.
Our members are real analysts and investors
across the globe (see occupation and geographic
slides). Our views are supported by member
surveys. We have been consistent and persistent
in the pursuit of our solidly and logically grounded
financial reporting objectives.
CFA Institute supports liquidation accounting.
We do not support liquidation accounting.
We support information that investors can use to
value the enterprise.
23
CFA Institute’s Advocacy Objective –
Financial Reporting Policy Group
Myths
Realities
The requests are complex and cost prohibitive.
Transactions are complex – and becoming
increasing complex. Accounting complexity
generally derives from economic complexity.
CFA Institute does not compromise.
Our approaches are not pragmatic.
Our views are meant to portray economic reality.
Compromises diminish economic meaning.
We have provided the most comprehensive,
cohesive and consistent investor framework and
feedback to the standard setters over the
decades.
The information is not possible to obtain.
Information is economic and used by
management to make decisions. We have seen
that when there is a will, there is a way to obtain
the information.
CFA Institute’s views are U.S. centric.
Membership surveys support our views and
consistently represent geographic distribution
with nearly half of the membership located
outside of the U.S.
.
24
CFA Institute’s Advocacy Objective –
Financial Reporting Policy Group
Long History of Commenting On Controversial Financial Reporting Positions
Issues We’ve Advocated For Over Time Where We’ve Heard These Comments Before…..
1970s Leases: Advocated reporting of lease obligations on balance sheet. Lessee and lessor accounting
should be the same.
1980s Employee Benefit Plans: Advocated transparent reporting of economic position in financial
statements (e.g. all liabilities on balance sheet, fair value for assets, elimination of smoothing, better
assets & liability disclosures).
Cash Flows: Supported separate reporting of operating, investing, and financial cash flows.
Advocated for direct cash flow statements.
1990s Debt and Equity Securities: Debt and equity securities should be measured at fair value.
Stock Based Compensation: Supported expensing of stock-based compensation.
Derivatives: Derivatives should be fully disclosed and accounted for at fair value.
2000s Acquisitions: Supported elimination of pooling of interest method that suppressed economics of
acquisitions.
…Some Have Come To Pass Over Many Years…
25
CFA Institute –
Understanding Our Positions
26
CFA Institute –
Understanding Our Positions
Financial Reporting in the 1990s and Beyond (1993)
 States how and why financial reports are used in the
analytic process.
 Articulates what disclosures are essential to analysts, not
only their form and content, but also frequency with which
they are reported and means of dissemination.
 Defines separate, but complimentary, roles of financial
analysis and financial reporting.
27
CFA Institute –
Understanding Our Positions
Comprehensive Business Reporting Model (CBRM) (2007)
 Articulates Financial Reporting Best Practices – Constructed after long
period of deliberation and reflection of positions articulated over the years.
Based on: Financial Reporting in the 1990s and Beyond (1993) and
previous advocacy efforts spanning over several decades
 Emphasizes Economic Reality – Represents a vision that can be
realized if financial reporting improvements are to place greater emphasis
on faithfully reflecting economics of reporting companies.
 Provides Financial Reporting and Disclosure Objectives – Primary
objective of financial reporting & disclosure must be to provide all of
information that owners of common equity require to evaluate their
investments.
 Develops 12 Core Principles – Articulates principles that should govern
financial reporting.
 Provides a Standard Setting Progress Yardstick – 12 core principles
provide measure of progress of ongoing standard setting.
28
Understanding Our Positions –
Comprehensive Business Reporting Model
Principles
1. Information Needed by Suppliers of Capital
The primary financial statements must provide the information
needed by equity investors, creditors, and other suppliers of risk
capital.
2. Perspective of Equity Investor
In financial reporting standard-setting as well as statement
preparation, the company must be viewed from the perspective of an
investor in the company’s common equity. Equity investors,
who bear the greatest risk, need the most information. So when their
information needs are satisfied other investors will have received
the information they need.
3. Relevance of Fair Value
Fair value information is the most relevant information for investment
decision-making.
4. Recognition & Disclosure Determined
by Relevance Over Reliability
Recognition and disclosure must be determined by the relevance of
the information to investment decision-making and not based upon
measurement reliability alone.
5. Recognition Upon Economic Occurrence
of Transaction/Event
Transactions and events that affect the company’s economic
position must be recognized as they occur in the financial statements.
6. Investor Materiality Threshold
Investors’ information requirements must determine the materiality
threshold.
29
Understanding Our Positions –
Comprehensive Business Reporting Model
Principles
7. Neutrality
Financial reporting must be neutral.
8.
All changes in net assets, including changes in fair values, must be
recorded as incurred in a single financial statement, the Statement
of Changes in Net Assets Available to Common Shareowners.
Statement of Changes in Net Assets
Available to Common Shareowners
9. Direct Cash Flow Method
The cash flow statement provides information essential to the
analysis of a company and must be prepared using the direct
method only.
10. Disaggregation
Changes affecting each of the financial statements should be
reported and explained on a disaggregated basis.
11. Reporting Based on Nature
Individual line items should be reported based upon the nature of
the items rather than the function for which they are used.
12. Effective Disclosures
Disclosures must provide all the additional information investors
require to understand the items recognized in the financial
statements, their measurement properties, and risk exposures.
30
Understanding Our Positions –
Comprehensive Business Reporting Model
Criteria for Development of Effective & Useful Disclosures
1. Disclosure Complements Recognition
& Measurement
Disclosure is not a substitute for recognition and measurement, and recognition and
measurement do not eliminate the need for disclosure.
2. Concurrent Development of Recognition,
Measurement & Disclosure Standards
Standards for recognition and measurement of financial statement items and their
related disclosures must be developed concurrently.
3. Disclosure of Judgment & Choices
Policy choices, assumptions, judgments, and methods must be fully and
clearly disclosed.
4. Disaggregation
Disclosures should provide sufficient disaggregated information for
investors to be able to fully understand and interpret the summary
information in the financial statements.
5. Disclosure of Risks
Investors require clear and complete disclosure of a company’s risk
exposures, its strategies for managing risks, and the effectiveness of those
strategies.
6. Disclosure of Off-Balance Sheet Items
Investors must have clear and complete disclosure of all off-balance sheet
assets, liabilities, and other financial arrangements and commitments.
7. Disclosure of Intangible Assets
Investors require clear and complete information about intangible assets held by a
company.
8. Disclosure of Contingencies
& Commitments
Investors require clear & complete information about a company’s contingencies &
commitments.
31
Understanding Our Positions –
Comprehensive Business Reporting Model
The CBRM attracted widespread attention for our views on:
Fair Value
Financial Statement
Presentation




Disaggregation
Rollforwards
Cohesiveness
Direct Method Cash Flow

Desire for fair value measurement is connected with appropriate financial statement presentation

Fair value and cash flow are both useful measures.
Accounting can be cash, fair value or smoothed accounting conventions.

We need the fair values of existing assets and liabilities along with a financial statement
presentation that transparently reports cash flows using the principles of disaggregation,
cohesiveness and rollforwards that facilitate connection of the value and cash flow based
measurements across the financial statements.

This comes from our belief that such reporting supports all investment valuation methodologies.
32
Understanding Our Positions –
Our Views vs. Other Investor Views
Information Needs Vary Due to Different Valuation Approaches
Intrinsic Value
Approach
Seeks to determine what a stock is worth.
(i.e. price at which it would sell if properly
priced in the market.).
Relative Value
Approach
Is concerned with the relative (comparative)
valuation of similar enterprises. Promotes
smoothening as it enhances comparability.
 CFA Institute positions are based on an intrinsic value approach.
(Benjamin Graham was proponent of the intrinsic value approach).
 We believe that both approaches are widely used (often in combination).
 Our views are developed from the perspective of the long equity investor.
 This is why the CBRM principles focus on value.
 Investor focus on total return over time leads to importance of market (fair) values.
33
Engaging Effectively with Investors and Users
34
Engaging Effectively with Investors and Users –
Who Are They? What Drives Their Financial Reporting Agenda?
Ask Questions: When seeking investor or user input on financial reporting topics it is
important to ask the following questions:
Compensation
How is investor user compensated? How do they make money?
Conflicts of Interest
Does the input received reflect any conflicts of interest?
 Investment banking relationship
 Dependence on access to management for client meetings or
conferences
Is the investor an advocate of good financial reporting for all investors
or does investor believe they can exploit the lack of information in the
financial statements to seek investment returns
(e.g. fair value information on real estate)?
What Consequences Exist for Loss in Value?
What is the consequence of a loss of investment value?
(e.g. loss of value, loss of fees on value, inability to make pensioner
payments, loss of customer, etc.).
What is the downside risk? Who bears the loss?
What Motivates the Input?
Does the input reflect an interest in financial reporting or concern over
possible economic consequences of new standards?
35
Engaging Effectively with Investors and Users –
Who Are They? What Drives Their Financial Reporting Agenda?
Ask Questions: When seeking investor or user input on financial reporting topics, it
is important to ask the following questions:
Type of Organization
What type of organization do they work for?
(e.g. investment bank, corporation with public filings, etc.)
Use of Financial Statements/
Access to Company Management
How does the investor/user actually utilize financial statements?
What access do they have to company management other than financial
statements?
Valuation Approach
Are they in the business of valuing the enterprise or its securities?
What valuation approach, if any, do they use?
Are they valuing debt and/or equity?
Does the investor/user perceive there is a difference in financial reporting
needs based upon the percentage of enterprise acquired
(e.g. If acquiring entire enterprise vs. individual/institutional investor)?
36
Engaging Effectively with Investors and Users –
Who Are They? What Drives Their Financial Reporting Agenda?
Ask Questions: When seeking investor or user input on financial reporting topics it is
important to ask the following questions:
Type of Investor
What asset class do you invest in?
What industry do you follow?
Are you a passive or active investor?
Are you a long-term or short-term investor?
Do you invest for maximum return or to fund operations/liabilities?
Does The Investor Favor Lack of
Transparency in Financial
Reporting?
Ask why transparency is bad for investors?
Volatility
When hearing that volatility is bad or non-economic, ask why it is
bad or non-economic?
Regulatory (Solvency/Liquidity)
Information
Are there sufficient sources of regulatory/solvency/liquidity
information available from sources other than IFRS or U.S. GAAP
reporting?
Is financial reporting a proxy for appropriate regulatory reporting?
Should that be the goal of standard setting?
37
Engaging Effectively with Investors and Users –
Who are They? What Drives Their Financial Reporting Agenda?
Sell-Side Analysts
Buy-Side Investors (Passive)
Sell-side analysts are not investors and they do not
make investment decisions.
These individuals are price-takers &not in the
business of making detailed valuation decisions.
 Their work is used as a selling tool by the investment
banks or brokerages they work for.
 They are widely known because of publicly available
reports and participation on analyst calls.
 Heavy emphasis on projecting future earnings. As
such, preference is for reduction in volatility.
 Many work to replicate indexes or tracker funds.
They are not users of financial reporting per se.
Buy-Side Analysts & Investors (Active)
These analysts & investors are in the business of
using financial reporting information to estimate
values and make investing decisions.
 May use different approaches (e.g. relative versus
fundamental) & hence information needs & desire
for comparable information versus value based
measurements may be different.
 Who they work for & the purpose of the investment
decision (e.g. seeking alpha or funding
liabilities/operations) may vary.
 Theoretically whether they are valuing equity or
debt should be valuing the enterprise, but credit
analysts have preference for cash flow/ amortized
cost for debt to determine repayment capacity.
38
Engaging Effectively with Investors and Users –
Who are They? What Drives Their Financial Reporting Agenda?
Hedge Funds/Private Equity
 Hedge funds & private equity investors attempt to use
management or financing skills to improve returns.
 Tend to utilize a more fundamental/intrinsic value
approach.
 Are compensated based upon returns achieved.
 May use their skill to exploit asymmetry of information in
financial reporting.
Pension Plans/Endowments/Foundations
 Pension plans, endowments, & foundations invest to fund
liabilities or operations.
 Losses may result in inability to fund operations or
liabilities as well as reduction of compensation for
investment decision-maker.
 May make asset allocation decisions & delegate investing
decisions or may make investing decisions directly.
 Generally active buy-side analysts & investors
(price-makers).
Credit Rating Agencies
 Credit rating agencies do not make investing decisions.
Use financial statements and, in some cases nonpublic
information furnished by the enterprise, to provide credit
ratings.
 Heavily interested in cash flows & debt repayment ability
on debt securities being rated.
 Don’t do valuations of the enterprise per se.
 Are compensated by entities to whom they are issuing
the rating.
Prudential Regulators
 Prudential regulators are concerned with liquidity and
solvency rather than valuation.
 Have the right to require other information or accounting
methods.
 Basing accounting standards on prudential regulatory
needs may result in loss of information to investors &
other users of financial statements.
39
Engaging Effectively with Investors and Users –
Who are They? What Drives Their Financial Reporting Agenda?
Evaluate Answers to
Determine Financial
Agenda
Understanding the answer to these questions will provide insight into the
investors/users’ financial reporting agenda and what information is or is not
needed and why.
Expect Diversity of
User Opinions
Should Not Lead to Gridlock or Dismissal of Investor Views:
Diversity of viewpoints among users is to be expected and should provide
impetus for standard setters to understand why differences arise and to
seek the most transparent information.
Should Not Lead to Opinion Shopping: Risk of opinion shopping
increases if standard setters are seeking a single representative view.
Consider CFA Institute’s
Financial Reporting
Agenda
Our objective is to provide an unbiased, long-term view as to transparent
financial reporting from a long equity position fundamental valuation view.
We focus on both the valuation of existing assets and liabilities, the cash flow
generating capabilities of the organization and the underlying valuation of the
enterprise.
We believe that if financial reporting meets the needs of this perspective,
then all investors and users financial reporting needs will be addressed.
40
40
Engaging Effectively with Investors and Users –
Define Reporting Objectives
Importance of Defining Reporting Objective – We believe it is important to define the
reporting objective so as to not lose sight of whether the standard setting process serves the
needs of most investors. We believe that the standard setting process sometimes loses sight
of the reporting objective. Questions to consider:
 Who is your target audience?
− Specialist industry investors or general purpose users of financial statements?
− Have you engaged with them to determine whether they agree with the objective & the
results
 What are you trying to communicate?
− Cash flow, financial position or operating results?
 Has the objective been defined in advance?
 What reporting issue has been identified for correction?
 Are there clearly defined and conceptually sound reasons for deviating from original
reporting objective?
 Does the information provided by the standard reflect the economics of the underlying
transactions?
41
Engaging Effectively with Investors and Users –
Develop User Oriented Communication
Tailor Communication and Minimize Excessive Accounting Parlance –
− Much of standard setting language is accounting parlance investors are not familiar with
(e.g. unit of account, assets created with no alternative use, performance obligations at a point in time).
− Accounting speak should be mapped to commonly understood terms.
Include Practical Illustration of Concepts –
Communicate using practical industry specific real world examples.
Emphasize Likely Financial Statement Impacts –
Highlight impact of accounting standards changes on financial reporting for different industries.
Train Staff in Use of Financial Reporting in Analysis of Financial Statements – The standard setting
staff needs to understand how analysts and investors use the information contained in financial statements.
Better Articulate the Effects of Proposed Standards –
− Articulate changes, basis of changes and impact of changes that are proposed across consultative
documents (e.g. existing literature, discussion paper, exposure draft and re-exposure draft).
− Do not assume investors are familiar with previous accounting literature.
Coordinated Communication Necessary to Avoid Burdening Investors – Minimize duplicative
communication by standard setting bodies (e.g. IASB, FASB, EFRAG and other national standard setters).
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Engaging Effectively with Investors and Users –
Information Intermediaries & Decision-makers
Recognize Different Investor Roles in Security Selection Process
− Information intermediaries provide input for investment decisions
(e.g.
security selection decisions and trading strategy recommendations).
− Decision-makers include fund and other portfolio managers who actually decide which securities
to buy or sell and when to do so.
Investor Organizations Possess Multilingual Capability
− Have understanding of investor perspective and investment analytical approaches.
− Better capacity to monitor detailed standard-setting and technical accounting development.
Investor Organizations are Standard Setting Outreach Partners
− Can facilitate communication to and from investors regarding key standard setting developments
(e.g. surveys and webcasts).
− Are less constrained in speaking out on behalf of investors.
− Are well placed to solicit investor input on key financial reporting topics.
− Can be potential partners in standard setting research objectives.
All Inclusive User Engagement Approach Necessary
Important to identify knowledgeable experts across information intermediaries including investor
organizations as well as from investment decision-makers.
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