Confidence Accounting

A Bold Proposal from Long Finance, ACCA and CISI

Confidence Accounting is a 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. The landmark, free-to-download report was published on 5 July 2012 (press release):

Andy Haldane, Executive Director for Financial Stability at the Bank of England welcomes the proposal and writes 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.”

Responses to the July 2012 report are available online. The publication included a invitation to readers to comment on the content of the proposal. A questionnaire was circulated during events and was also available online. Read the Confidence Accounting Consultation Responses for more information.

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.

Read More

• Edward D. Weinberger (2015): Financial Statement Items as Interlinked Stochastic Processes. IMA Research Incubator, Grant Final Report.
• John Davies (2014): Courting Confidence. Accountancy Futures, ACCA: page 40.
• Michael Mainelli (2014): What Has Accounting Got To Do With The Price Of Fish? Economia, Institute of Chartered Accountants of England and Wales.
• Michael Mainelli (2014): Comment: Accountants Could Benefit From Thinking Like Engineers. Engineering & Technology Magazine.
• Michael Mainelli (2014): Why Spurious Financial Precision May Be Killing Our Markets – And Our Fish. City AM.
• David Rowe (2014): Prudent Valuation Versus Confidence Accounting. Risk Magazine.
• ACCA & Long Finance (2013): Confidence Accounting Consultation Responses.
• Investment Management Review (2013): Revolutionary Accounting Method Proposed.
• Michael Mainelli & Jan-Peter Onstwedder (2012): Buried Treasure Naturally Confident – Accounting For Resources. The CA, Institute of Chartered Accountants of Scotland.
• Michael Mainelli (29 July 2012): The Battle For Accountancy Has Begun. Financial Times, FTfm, Pearson PLC: page 6.
• Eric Tracey (2012): Confident Accounting. Financial Director.
• Michael Mainelli (2011): Accounting For Confidence. Securities & Investment Review: pages 22-23.
• Michael Mainelli (October 2011): Banking On Confidence: Rethinking Audits Of Financial Institutions. Corporate Governance and Sustainability Challenges.
• Michael Mainelli (2009): Confidence Accounting: Putting Essential Uncertainty Back Into Auditing And Accounting. EURO CFO Ltd, Aerial.
• Michael Mainelli (June 2009). Confidence Accounting: Putting Essential Uncertainty Back Into Accountancy. Journal of Risk Finance, Vol.10 (No.3). Emerald Group Publishing Limited.
• 2006 Symposium: Reforming Auditing - Incremental Change Or Radical Action?

Citations

• David M. Bholat. (July 2013): "The Future of Central Bank Data". Journal of Banking Regulation.