I read an article recently in Accounting Today titled “What if golfers used something like GAAP to keep their scores?”. As all great humor is based on reality, this is a funny way of pointing out some of the weaknesses in US GAAP. It’s main contention is that GAAP reporting doesn’t provide the real information that investors need to truly reflect the value of a company, a view that many would agree with.
In one of their many golf examples they state “One conspicuous difference would be that the GAGS (Generally Accepted Golf Scoring) scorecard would be accompanied by 10 pages of footnotes.” They point out later that “The most helpful information in GAAP reports often appears in footnotes, not the financial statements.”
This is unfortunately very true. Even more unfortunate is that even if all these gaps in GAAP were corrected, the document would present an accurate picture of where the company was, but still gives no reflection on where the company is going.
This is where Integrated Reporting steps in. We have posted a few blogs on integrated reporting, but the value of what is being offered cannot be overstated. Integrated Reporting , is completely focused on the value companies are creating, and while numbers are a part of it, it is the narrative that is associated with the numbers that is the key. A company reports on information that is broad in category, but focused on what is important to their business - what their strategic vision is, what macroeconomic risk factors may be of impact, what market innovations are upcoming and how it will affect them, what employee programs are being deployed and the benefits, etc. This information, combined with financials, both historical and predictive, provide the insight into a company that is needed by the investor community at large.
Some may look at this and think it is a nice theory, but the reality of implementing such a program at their company is near impossible. I say hogwash (I actually have never used that word and always wanted to!). Like any worthwhile endeavor, Integrated Reporting will take effort. However it is not an all or nothing approach. You do not need to flip a switch and voila! You are there. You can take pragmatic steps that will add value at each level, and get you closer and closer until the ultimate goal is reached.
GAAP does have some holes that need to be filled, and could definitely do more to promote more transparent reporting. However the real goal for companies should be on the real reporting value of Integrated Reporting .
In the meantime, if anyone would like to play a round of golf with me using GAGS rather than regular rules, I’m game! I know my score would benefit!
What are your thoughts? Are you implementing more narrative in your reporting cycle?
By Paul Giardina, from: http://www.tagetik.com/blog/authors/paul-giardina/2014-09-04-golfers-gaap#.VAtahcJdV8E