The Handbook of Board Governance, 3rd Edition

32Scary Financial Reporting Issues for Directors

Dr. L.S. (AL) Rosen, FCA, FCMA, FCPA, CFE, CIP

Founder, Rosen & Associates Limited

Background

Being investigative accountants with years of court experience, we are observing far too many recent situations where corporate directors have overlooked relatively recently changed (and weakened) laws and financial reporting practices. Such deficiencies are especially prominent in countries that have adopted IFRS (International Financial Reporting Standards) reporting. The consequences are that investors become swindled, and then launch lawsuits.

IFRS is virtually the opposite to what many countries previously utilized, such as that country’s particular GAAP (Generally Accepted Accounting Principles). IFRS has many conceptual and practical flaws that allow swindlers to easily deceive stockholders as well as potential investors. In essence, IFRS has been falsely advertised as being a logical “improvement” on GAAP’s “rules approach.” Such a claim is staggeringly false. If anything, IFRS is a major aid for financial tricksters. It allows significant bloating of “net income” of corporations, with its nasty consequences.

We all know that much of the media will hype phrases such as “net income per share increased by 6 percent over last year; the stock price rose by 5 percent in the past two days.” That is, some supposedly near-connection ought to exist between “net income” and “stock price.” Translation: “Too many investors seem to believe ...