Notion of Transparency

In the light of recent financial scandals, like Enron in 2001, we can wonder how easy it is to understand the economic reality of companies through their financial reports. For example Enron seemed to be a transparent company and its accounts translated a healthy and wealthy company and only a few months later when it all fell apart, one discovered a mix of fraud, lies and nepotism. The leaders of Enron were used to make their friends and relatives benefit from their power in the company. Moreover company profits had been exaggerated and the discovery of this scheme did nothing but increase panic among investors. Within one year, the market value had been divided by 350 and investors were ruined. Enron had misled finance specialists. How is it possible to restore, after such a scandal, investors’ confidence? Since then, investors have become less certain of the way to assess the profitability and performance of companies, and tend to increasingly question the accuracy of financial reports. However the investor confidence is essential for a healthy economy because financing allows firms to invest, and therefore innovate. Innovation is one of the main tools companies have to acquire a competitive advantage while answering the markets needs. Therefore, to “kill” investment is in the long run detrimental to the market. The latter recommends greater transparency in financial reporting in order to better assess the risks. But in accountancy, transparency is a very abstract concept; it is difficult to define it. > Continue.

Publications: Covalence Analyst Papers | Country: Global | Company: Banks | Source: Franà§ois Samaison