Baylor University Roundtable on

Integrity in Financial Reporting

 Co-Moderator and Panelist
Co-Moderator:
• Bill Thomas (Professor of Accounting here at Baylor’s Hankamer School of
Business)
• John Martin (Professor of Finance)
Panelist:
• ROBERT ALSPAUGH (Chief Executive Officer of KPMG International)
• STUART GILLAN (Assistant Professor of Finance at the University of
Delaware’s College of Business and Economics)
• WILLIAM KINNEY (University of Texas at Austin)
• CHARLES NIEMEIER (Chief Accountant for the enforcement division of the
U.S. Securities and Exchange Commission in Washington, D.C.)
• WILLIAM POLLARD (Chairman of the Board of The ServiceMaster
Company)
• BENNETT STEWART (Senior Managing Partner of Stern Stewart & Co.)
• Does Financial Reporting Matter?
• Crisis in corporate governace?
• Changes in accounting
• The case for accounting reform
• More on accounting
• Toward a solution
• The challenge of complexity
• The promise of sarbanes-oxley
Does Financial Reporting Matter?
financial reporting becomes a key element in
the overall process of U.S. corporate
governance. It is an important part of the
process by which management communicates
with all its key stakeholders, including of
course its shareholders.
 Crisis in corporate governace?
• The role of board directors
• Financial reporting failures
• Overinvestment
 Changes in accounting
• Reputational risk
• Separate function of risk assessment and
revenue production
 The case for accounting reform
• the failure of accounting to count what counts
and provide a meaningful measure of value
• Conflicts between finance and accounting
 More on accounting
• GAAP accounting often fails to provide a
useful guide to managerial decision-making.
 Toward a solution
• instill in people a stronger morality, a greater sense of
fairness and ethics.
• need a well-crafted set of laws, together with vigorous
enforcement of those laws, as a deterrent to fraud.
• provide better disclosure
• Design institutions and incentives to encourage the kind of
behavior that we want.
• break the chain that now forces corporate leaders to meet
the quarter-by-quarter expectations of sellside analysts—
and to report good news all the time.
• The board should hold management’s feet to the fire and
maintain a focus on long-term shareholder value—not
quarterly earnings targets.
 The challenge of complexity
• having the necessary training and expertise for a given
assignment is clearly an essential part of dealing with a
very complex world.
• must learn about GAAP—and they should know
something about detecting material misappropriation
fraud by employees and misrepresentation fraud by
management.
• auditors can’t use their full set of skills
• “monitoring their own partners”
• the board of directors
• the market itself is also beginning to improve corporate
governance with some promising innovations
 The promise of sarbanes-oxley
• the development of the new Public Company
Accounting Oversight Board.
• Strengthening of the authority of the audit
committee to appoint the external auditors
• Companies that might have gone public will now
choose not to—and companies that are now
public may tend to go private
• Convince Congress to depoliticize the process of
setting accounting standards, and to resist the
temptation to intervene with short-term and
partial fixes under pressure.