As regular readers know, perhaps the most interesting flaw of all in financial services reporting is the use of ‘discrete’ numbers rather than ranges. Confidence Accounting is a long-standing Z/Yen proposal to use distributions, rather than discrete values, where appropriate in auditing and accounting. In a world of Confidence Accounting, the end results of audits would be presentations of distributions for major entries in the profit & loss, balance sheet and cashflow statements. The proposed benefits of Confidence Accounting include a fairer representation of financial results, reduced footnotes, more measurable audit quality and a mitigation of mark-to-market perturbations. In July 2012, ACCA, CISI and Long Finance published a landmark, free-to-download report - Confidence Accounting: A Proposal, by Ian Harris, Michael Mainelli and Jan-Peter Onstwedder of Z/Yen Group, published by the Association of Chartered Certified Accountants (ACCA), Long Finance and the Chartered Institute for Securities & Investment (CISI), July 2012, 63 pages.

Andy Haldane, Executive Director for Financial Stability at the Bank of England welcomed the proposal and wrote in the foreword, “My hope is that this proposal moves our thinking a step closer towards a set of accounting standards for major entities that put systemic stability centre stage. In the light of the crisis, anything less than a radical re-think would be negligent.” For a quick introduction to Confidence Accounting, particularly its application to banking, in 2011 the CISI published “Accounting for Confidence” which provides a short overview. Confidence Accounting was introduced for the non-professional in “The Price of Fish: A New Approach to Wicked Economics and Better Decisions”, winner of the 2012 Independent Publisher Book Awards Finance, Investment & Economics Gold Prize.

FT coverage includes this piece on 29 July 2012 - The Battle For Accountancy Has Begun. ACCA, CISI and the authors have established a consultation period till the end of 2012. Long Finance is hosting an online discussion forum - (you need to join Long Finance, but it is free) – and an online questionnaire.

We’ve been very heartened by the reception during the consultation period. A seminar at Z/Yen in September kicked off the discussion with a good turnout and getting into the gritty issues of tax and pensions, as well as urging a natural resources or energy company case study. We held a seminar in October with half a dozen very large pension funds who have promised a joint response. We hosted another seminar in October with nearly 20 financial regulators with the proposition from them that this might be additional way to interact with financial firms. Two universities have approached us about putting a short quiz on Confidence Accounting on their syllabi. One European government has commissioned a major piece of work from one of their think-tanks about how Confidence Accounting might help with their natural capital balance sheet. CISI and Standard & Poor’s have organised further seminars. We were particularly pleased by the reception from the Institute of Chartered Accountants of Scotland – “how can we help?”. They’ve organised a conference in December to be chaired by Sir David Tweedie and commissioned an article for their members’ magazine. But if money is where the mouth is, perhaps the most interesting gossip is that one audit chairman has begun to talk with a smaller firm about pitching for work against a large incumbent, but only if the smaller firm interacts with the audit committee using a Confidence Accounting approach. Not so timid about new ideas these accountants.