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March 24, 2009

Corporate governance needs global convergence

Global convergence in financial reporting, audit and ethics may not be a given, but one area where it is missing altogether is corporate governance, according to European Financial Reporting Advisory Group chair Stig Enevoldsen.

“That is the missing link to ensuring full transparency in financial reporting,” Enevoldsen said.

He told The Accountant that while it is hard to evaluate how corporate governance stands on a global level, he believes there is significant variance and has observed different operations between countries in areas including Asia, the US and Europe.

If reporting and audit standards are set on a global level, there also needs to be work on converging corporate governance, he added.

“I think this is the missing link in reporting, because governance is of such importance to reporting,” Enevoldsen said.

The auditing profession began global convergence of both accounting and auditing standards in the early 1970s, and the profession has continued to drive the process.

“But there has never been the same drive for corporate governance,” Enevoldsen said. “We have never seen a global corporate governance attempt because you don’t have national corporate governance bodies that seem to work together internationally.”

Enevoldsen suggested there could be a role for the accounting profession in initiating global corporate governance convergence.

He said the key is getting the profession in many different countries involved.

“It would be a long term process to see if there is a better model, how all the interests can be met, and argue and debate and have discussion papers,” he said. “But if we don’t start long term processes, we never get there.”

Frank Curtiss from the International Corporate Governance Network (ICGN) said he agrees with Enevoldsen and that the challenge is to use non-financial reporting to bring greater transparency to mainstream reporting.

“It certainly reflects what we are trying to do,” he said.

Curtiss said the ICGN’s advocacy for non-financial reporting is not a war with the audit profession or standard setters.

“They recognise [the importance] themselves. They want to do something about it and we welcome that,” he said.

“It is also necessary for investors to make clear what they want, they after all own companies. Companies ought to react towards what owners want and in these difficult times we need all the information we can to assess risk properly and to take better investment decisions.”

Carolyn Canham

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