Confidence Accounting is a proposal to use distributions, rather than discrete values, where appropriate in auditing and accounting. In a world of Confidence Accounting, the end results of audits would be presentations of distributions for major entries in the profit & loss, balance sheet and cashflow statements. The proposed benefits of Confidence Accounting include a fairer representation of financial results, reduced footnotes, more measurable audit quality and a mitigation of mark-to-market perturbations. Today sees the publication of a landmark, free-to-download report:
by Ian Harris, Michael Mainelli and Jan-Peter Onstwedder of Z/Yen Group
published by Association of Chartered Certified Accountants (ACCA), Long Finance and the Chartered Institute for Securities & Investment (CISI) July 2012, 63 pages
Andy Haldane, Executive Director for Financial Stability at the Bank of England welcomes the proposal and writes in the foreword, “My hope is that this proposal moves our thinking a step closer towards a set of accounting standards for major entities that put systemic stability centre stage. In the light of the crisis, anything less than a radical re-think would be negligent.”
For a quick introduction to Confidence Accounting, particularly its application to banking, in 2011 the CISI published “Accounting for Confidence” which provides a short overview. Confidence Accounting was introduced for the non-professional in “The Price of Fish: A New Approach to Wicked Economics and Better Decisions”, winner of the 2012 Independent Publisher Book Awards Finance, Investment & Economics Gold Prize.
The report’s lead author, Professor Michael Mainelli, Executive Chairman of Z/Yen Group, said: “We wrote this report in order to suggest that accountants and auditors could provide greater social benefit by moving towards better measurement science. Already, the intense pre-publication reaction shows that professionals realise the need for debate, if not all the reforms we’re suggesting.”
ACCA, CISI and the authors have established a consultation period till the end of 2012. Long Finance intends to host a number of autumn discussion events during the consultation period where people will be welcome to put forward their thoughts, criticisms and suggestions – www.longfinance.net.