By Federica Tedeschi
Japanese companies have recently started to place a high value on investors that make investments from a mid- to long- term perspective, and as a result the number of companies issuing integrated reports has increased year on year, according to the Japanese Institute of Certified Public Accountants (JICPA).
JICPA has published the executive summary of a research paper on corporate reporting with a focus on non-financial information. The report was originally published in April in Japanese and an English version of the executive summary was released in October.
In order to pursue their goal to identify potential financial risks and returns arising from the investment, institutional investors should carefully analyse details on the evaluation of productivity, growth potential and risks of a company, its long-term vision and business model, as well as the driving forces behind them and importantly, policy and plan for the resource allocation, the report read. Equally relevant is to conduct an investigation into the company’s capital policy.
The report also highlights a widespread poor quality explanation on how corporate governance is developed by companies the investors have to deal with. Therefore, it advises businesses on how to improve their disclosure, which should be comprehensive, logical and based on long-term perspectives, to ultimately enhance the investor confidence.
The report provides key suggestions to develop and implement frameworks and standards for corporate reporting that reflects investors’ need, following complaints from investors in Japan, stressing that far too many disclosure- related documents contain scatter information.
Therefore, a thoroughly efficient Corporate Governance code could also prove to be time- saving for investors, who are expected to proactively communicate with companies by proposing the type of information they need and recommending targeted improvements in companies’ practices.
In its report the JICPA advocated for the financial and non-financial information to be reconciled in an integrated report.
