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June 25, 2014

Improved corporate reporting needed to boost infrastructure investments

By Steffen Müller

Traditional financial statements do not give investors the long term focus they need in their decision making, and improvements to corporate reporting, such as integrated reporting principles, are needed to encourage private investments in the infrastructure sector, a report compiled by the six largest international accounting networks has found.

The report, Unlocking Investment in Infrastructure – Is current accounting and reporting a barrier?, was commissioned by the B20 Group (B20), a group of business leaders from large companies which tries to influence governments from the Group of 20 (G20) countries on business related issues.

Responding to an estimate by McKinsey and Standard & Poor which suggested that the gap between global investment needs in the infrastructure sector and available public funds could be $500bn annually, the B20 asked the six largest accounting networks (Big Four, BDO and Grant Thornton) to analyse whether improvements in accounting and corporate reporting could help to attract private investments in the sector.

In their report, the panel of firms concluded that while financial statements in their current form play an important role in supporting investors’ assessments of potential project outcomes, they do not provide the complete picture on their own.

The panel recommended to the B20 and the G20 to support and promote improvements to corporate reporting in order to provide investors with a longer-term and broader perspective.

"Improved corporate reporting should be more focused on key drivers for investment, such as the earnings and cash flow potential, risk profile or regulatory capital impacts of long-term infrastructure projects, providing a more holistic view of how value is created over time," the report read.

"The principles of integrated reporting are one possible way of achieving improved corporate reporting," the report suggested.

With regards to accounting standards, the panel concluded that changes to accounting principles would not increase the attractiveness of long-term infrastructure investments.

However it recommended that the International Accounting Standards Board (IASB) continue to prioritise the issuance of a global standard on insurance contracts as the insurance industry is a potential major investor in infrastructure.

Finally the panel highlighted the important role played by regulatory requirements, regulatory changes and related uncertainties in investing decisions.

"Regulators should evaluate whether risk charges or calculations are appropriately aligned with the risk patterns of investments in infrastructure projects desired in their respective jurisdictions," the report read.

Related link:

Unlocking Investment in Infrastructure – Is current accounting and reporting a barrier?

 

 

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