A Director's Guide to Corporate Financial Reporting

This book is designed for current and prospective corporate directors, as well as executives in business courses who want to gain a better understanding of accounting in a board setting. Corporate directors and managers are under pressure from constant changes in the law (especially the Sarbanes-Oxley Act of 2002 and a move toward International Financial Reporting Standards) and demands by shareholders and the public to be more informed, vigilant, and involved in the governance of business organizations. One area in particular, accounting and financial reporting, has been a source of great consternation for directors. Breakdowns in internal control, reporting scandals, restatements, and outright accounting fraud have made accounting a source of dread and confusion for corporate directors. We have designed a guidebook with action steps, probing questions, and cases to help directors address key accounting issues that boards face. We discuss what accounting tries to accomplish, how well it achieves its purpose, and why and how accounting and financial reporting go awry. Emphasizing that accounting is a nonneutral financial reporting process, we show directors that accounting is a process by which financial information is recorded, classified, summarized, interpreted, and communicated. By focusing on key issues, including fair value reporting, performance measurement, and the board's role in policy formation, directors can learn to effectively scrutinize and advise their organizations about accounting practices and understand the impact of accounting issues on the operation of their organization.