Four Questions with Pinto Suri
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With the Securities and Exchange Commission’s (SEC) decision on the possible incorporation of International Financial Reporting Standards (IFRS) into the US system still outstanding, many are wondering about the implications for their work and organizations. In anticipation of the potential upcoming changes, IASeminars and NYSSA will host the 18th Annual NYSSA International Financial Reporting Conference & Workshops January 8-10, 2013.
Here, we spoke with Pinto Suri, a principal of Prudential Fixed Income’s Credit Research Group where he covers the insurance sector. Suri has been an active member of the Corporate Reporting Users Forum, a global organization formed to enable professional investors and analysts to engage in the debate on current and future corporate reporting issues. Prudential Fixed Income, a business of Prudential Financial, Inc., is one of the largest fixed income asset managers in the US with $348 billion in assets under management as of June 30, 2012.
Why is it important for US-based professionals to understand international financial reporting?
The increasing inter-connectedness of capital markets across the globe heightens the importance of US investor awareness of IFRS, especially given the increasing push for convergence by the FASB and/or US regulators. Given the still evolving nature of IFRS, US investors, as participants in the world's largest capital markets, have the opportunity to help influence and shape the accounting that we will all face for the foreseeable future. Absent this engagement, US investors risk having to live with financial measurement and reporting standards that may be at odds with our needs and desires in the US.
What is your position on the possible future US adoption of IFRS, and why?
As a US-based investor, I think any US adoption of IFRS must be on a case-by-case basis. Unlike many parts of the world, the US has well-functioning and deep capital markets with already largely effective accounting standards that investors have either developed sound analytical workarounds for or that have been proven effective on their own.
What additional information would financial analysts and other stakeholders want to receive from listed corporations, and can it be provided?
In the US, the overall depth and breadth of capital markets has allowed investor scrutiny along with regulatory oversight to drive largely effective disclosures between GAAP and non-GAAP information. However, outside the US, the disclosure quality and quantity, along with reporting frequency, vary significantly across countries. This can be problematic but not insurmountable as it requires more investor effort to understand the dynamics of the local markets. In general, I think more disclosure and color from management about how and why it arrived at the judgments embedded in its financial statements would be most useful - especially considering the increasing shift towards principles-based financial reporting.
Please share any brief thoughts you may have on important recent and envisaged technical accounting developments.
I believe the most important technical development is the recent shift to an asset/liability driven financial measurement and reporting model. As an investor, this is also the most concerning since this approach obviates many key valuation and analytic tools that have proven effective over time. This is especially of concern to the financial institutions sector that, despite being highly confidence-sensitive, increasingly finds the financial reporting model shifting away from reflecting the underlying business in favor of highly stylized accounting constructs that have little evidence of usability for investors. Financial reporting should reflect the underlying business model and not be driven by the accounting model.