Investors need details, watchdog tells firms

Jane Diplock, chairman of the Securities Commission. Photo / Martin Sykes

The investment watchdog warns companies who tap the public for money to give more details about how they value their financial assets and liabilities.

The Securities Commission looked at the financial reports of 25 companies before Christmas in its surveillance programme and found many did not do enough to explain how they set values.

Changes to the reporting standards last year mean companies have to put a value on financial assets and liabilities.

They must also show the extent to which valuations are linked to market prices and explain how a value was reached for those not linked to a market.

The information can be vital to anyone considering investing in a company.

"Securities issuers need to include more information on how their financial assets and liabilities have been valued," Securities Commission chairman Jane Diplock said.

Kimberley Crook, head of accounting advisory services for Ernst & Young, said disclosures were most important for firms holding a lot of financial assets.

"The importance of these disclosures depends on how significant these types of assets are to the issuer concerned - for example, the disclosures would be more important for an issuer in the asset management industry that has a lot of financial assets measured at fair value, compared with a corporate that might not have many of these sorts of assets."

Crook said the type of assets needing to be valued fitted into three categories - those that used quoted prices in an active market such as shares, assets that were valued with help from market prices such as currency swaps and a third category which relied on "unobservable inputs" such as shares in unlisted companies.

Because the third category was the most subjective, it needed the most explanation as to how values were reached, Crook said.

The commission also found companies needed to do more to explain any alternative performance measures used.

"Any disclosure of alternative performance measures needs to be properly [communicated] and not detract from statutory financial information," Diplock added.

The commission said it was writing to 17 of the 25 companies about 32 matters with which it had concerns.

Further details of the Cycle 14 report would be released in the next few weeks, the commission said.