Do people understand?
September 19, 2008
At times of turmoil, whether caused by natural events or through shortcomings in human behaviour, we typically stop and reflect on what's important in life. This very process is often based on a very simple analysis, which typically tries to unearth the basic building blocks on which we rely. In the case of a natural disaster the focus moves quickly to the building blocks of life - food, heat and water.
In responding to the market meltdown of the last few weeks, perhaps we should be applying the same sort of logic. One thing I have learnt over the years is that most directors have one thing in common; it's an ability to cut through the clutter and turn complex issues into things the ‘common man’ can understand.
But is this something directors today feel able to do? Have we made business too complicated? Have we made the reporting and regulatory model too complicated so that even our best business men and women feel remote from the businesses they run? Or have we created a world where they feel unable to move without some specialist there to explain what's really going on?
Well this leads me to one of my recurring bug bears, how accessible is the current reporting model to those that should be responsible for it, those that use it and those that audit and regulate it? I recently ran a seminar on reporting for non-executive directors and was not surprised to find that most of them felt unengaged and remote from this critical measurement and communication tool for which they are meant to be responsible.
I hope this issue is not lost when we stand back and learn the harsh lessons of the last 10 years. Above all we must question the utility of the financial reporting model and in doing so be really clear about the cost benefit that accrues to prepares, users and regulators. You may be interested in a related article I wrote for Accountancy Age last week entitled - The shifting sands of cost benefit.
The article focused on the priorities of the IASB and poses the question of whether its time to establish a new agenda focused on the real needs of users.