The frameworks that support reliable financial disclosures have recently been coined Finance Governance, Risk, and Compliance (FGRC).

The FGRC research practice area is focused on helping public and private organizations build and sustain cost-effective FGRC systems that add real value.

Financial information is used by:

• investors
• credit rating agencies and lenders
• regulators
• management
• employees, pensioners, suppliers, customers, and others.

It is the responsibility of management accountants to ensure the reliability of the financial information within their organization. Their key goal is to build quality in, not to rely on inspection, external auditors, and expensive “rework” to correct errors.

Good, strong FGRC systems produce many tangible benefits, including:

• stronger credit ratings,
• lower cost of capital,
• higher share price,
• less regulatory intervention, and more.

Poor, weak FGRC systems can result in the opposite and lead to catastrophic consequences including:

• delisting from security exchanges,
• criminal actions against an organization’s CFO, CEO, and Controller,
• senior management terminations, and
• in severe cases, the demise of an entire organization.

Value Proposition
IMA’s Finance GRC Research Practice delivers:

• A “resource center” that provides one-stop shopping for practitioners around the world who are interested in building awareness and capability in the financial aspects of governance, risk, and compliance; and
• IMA educational programs with modules focused on FGRC.

FGRC Market Overview Powerpoint Presentation
This presentation gives a general overview of FGRC. Click here to download the presentation.

Breaking News

U.S. Treasury’s Release of Restatement Study
On April 9, 2008, the U.S. Treasury Department released its study of restatements: “The Changing Nature and Consequences of Public Company Financial Restatements." authored by Prof. Susan Scholz of the University of Kansas. Prof. Scholz obtained a copy of IMA’s discussion paper prepared by our FGRC practice: “The Missing Piece in the Restatement Puzzle” to use as a reference for the U.S. Treasury study.

The following are highlights noted in the restatement study:

• Financial restatements grew nearly eighteen-fold from 90 in 1997 to 1,577 in 2006 with acceleration in restatement activity occurring in 2001 before the implementation of the Sarbanes-Oxley Act
• Restatements associated with fraud and revenue declined after 2001. Fraud was a factor in 29 percent of all 1997 restatements, but only 2 percent of 2006 restatements. The proportion of revenue-related restatements also decreased from 41percent in 1997 to 11 percent in 2006
• Market reactions to the restatements dampened over the decade study period, while the number of restatements grew. Market reaction to financial restatements tended to be more negative when the restatement involved fraud or revenue errors.
• Restating companies are typically unprofitable even before the restatement. In the year prior to announcing a restatement, more than half of restating companies reported a net loss.