Concerns over weaknesses in the international accounting framework have been raised in a paper issued by a group of major European institutional investors, including Universities Superannuation Scheme Limited.
The group of 10 signatories, with combined assets of approximately €340 bn (£288.5 bn), warn that current accounting standards fail to give sufficient priority to prudence, undermining investors' ability to hold company executives to account and weakening companies' long-term decision-making.
The Paper follows recent expressions of concern about accounting standards in the banking sector by senior figures at the Bank of England. The signatories of the Paper believe the same issues apply to other sectors too.
Ben Levenstein, Head of UK Equities at USS Investment Management Ltd, commented: “Our wish in publishing this paper is to highlight that it is not just regulators who need prudence in company accounts, but also long-term investors who rely on accurate numbers to hold executives to account. This is key in the promotion of long-term decision-making, which in turn will encourage greater macro-economic stability. The gravity of some investors’ unease about the international accounting framework is a serious concern which must be addressed.”
This paper comes on the heels of an investor initiative to urge European policy-makers to hold firm on audit reform. Specifically, the coalition – which now numbers 29 and represents approximately €1.66 trillion in assets - is calling for mandatory audit firm rotation at least every 15 years, limits to non-audit work conducted by the auditor; and greater disclosure around audit to shareholders. Robust, independent and prudent audits are vital to complement a prudent accounting framework.
Both position papers can be found on the USS website.
For more information, please contact MHP Communications:
Tel: 020 3128 8523
Tel: 020 3128 8533