Effective corporate ethics codes need to be in place and actively monitored, says a new a report on the credibility of financial reporting.

The report, called “Rebuilding Public Confidence in Financial Reporting: An International Perspective,” was written by an independent task force commissioned by the International Federation of Accountants and chaired by former Governor of the Bank of Canada John Crow.

It includes recommendations for strengthening corporate governance, improving audit effectiveness, and raising the standard of regulation of issuers. It also presents an international perspective on the challenges facing not only the accountancy profession, but also those involved in regulating a profession that has such a significant involvement in capital markets worldwide.

The report was developed by individuals with backgrounds in commercial banking, international economics, academia and law, as well as accounting and auditing, from six countries: Australia, Canada, France, Japan, Britain, and the U.S.

Other recommendations include:

  • Codes of conduct need to be put in place for other participants in the financial reporting process — such as investment analysts and lawyers — and their compliance should be monitored;
    • Incentives to misstate financial information need to be reduced, and companies must refrain from forecasting profits with an unrealistic level of precision; and
      • Audit effectiveness needs to be raised, primarily through greater attention to audit quality control processes.



      “Failure to recognize the fundamental responsibility to report fairly has been a major contributor to the financial scandals of recent years,” Crow said in a statement.

      “In crafting our recommendations, we have kept in mind that public reporting is intrinsically a public-interest activity. So, our report addresses the roles of all those who are involved in the process, including groups such as lawyers, bankers, brokers, analysts, and public relations advisors. All parties, besides the management, board of directors, and independent auditors, have an unavoidable duty to ensure that public reporting presents the information fairly, and the rules and regulations surrounding corporate reporting should clearly reinforce them.”

      The full report and complete list of recommendations can be accessed online by going to www.ifac.org/credibility. Comments may be submitted to credibility@ifac.org.

      IFAC is the worldwide organization for the accountancy profession. Its current membership consists of 155 professional accountancy bodies in 113 countries, representing more than 2.4 million accountants in public practice, education, government service, industry and commerce.