The Gamestop story is fascinating for a variety of reasons but one issue that it illustrates is the disconnect between investors and companies. The underlying story of Gamestop is almost entirely irrelevant to the trading in its shares. None of the frantic market activity has anything to do with company resources.
When our current corporate reporting framework was established in the nineteenth century, it had a clear purpose: it allowed creditors and those buying company shares to see what had happened to the resources they had provided and to hold those managing those resources to account.
The economic and social environment of the twenty-first century is very different. The development of institutional shareholders and the complex array of investment intermediaries has fragmented that original direct relationship and obscured accountability relationships. Corporate reporting has not kept up with this. Periodically the flaws in the reporting model become too obvious to ignore but the solutions have been pragmatic and politically expedient, rather than based on a reconsideration of the fundamental assumptions on which the model is based.
For example, financial scandals in the 1960s prompted the accountancy profession to establish accounting standards. At the time, Professor Will Baxter outlined the possible consequences of this. He was especially prescient with regard to the impact of standards on education and the potential stifling of original thought about the role of accounting in society.
This avoidance of revisiting basic assumptions is very apparent in the recent discussion paper issued by the FRC which seems to be little more than an attempt to reconfigure the presentation of corporate information without providing any fundamental reflection on the role of corporate reports. It is worth comparing this attempt with the 1975 discussion paper The Corporate Report and the 1988 publication Making Corporate Reports Valuable, both of which tried to assess the underlying purpose of reporting before offering innovative ways to achieve this. Sadly, accounting history does not feature prominently in accounting education.
The FRC discussion paper claims to offer a "stakeholder neutral" approach to the content of corporate reports. Is this logical? Surely the audience for corporate reports is corporate stakeholders, however they may be defined? "Neutral" may be intended to indicate that no particular stakeholder group will be given prominence but it is surely impossible to decide on the content of reports without considering the information requirements of the audience and the very act of considering these must involve some kind of ordering.
A narrow shareholder focus for reporting is presumably no longer deemed appropriate. Certainly the reporting framework seems to assume that shareholders are a homogenous group with common interests which is clearly not the case now, if it ever was. The Gamestop story again illustrates that. But shareholders in the original joint stock companies were more likely to be providing resources directly to the company than they are today.
A more radical approach to corporate reporting could begin by identifying those who provide the resources which enable companies to operate. Assessing their information needs could redefine the context and communication of corporate reporting within a clear framework of accountability and assurance which could underpin a reassessment of the role of audit and the necessary corporate governance mechanisms.
