Professor Claus Luttermann

International perspectives regarding legal actions against directors, corporate finance and governance and establishing a world monopoly of corporate valuation with IFRS/XBRL

Legal actions against corporate directors: On what substantive basis are they justifiable?  In the wake of the debt crisis with huge losses at corporate level (write-downs), questions of liability and (criminal) sanctions arise. It is about sanctioning individual responsibility, particularly veiled risks (eg off-balance sheet operations, Special Purpose Entities, toxic assets). On what basis can this legally be assessed? This includes both the individual cases and in total a just order of assets (law of accounting, auditing and disclosure, appraisal of businesses as a core area of the law).

The second area of focus in this paper will be on corporate Finance and Governance: Transfer of risk and assets (wealth). Corporate financing is central to the company’s management. Thereby, the transfer of risk and value is the game on capital markets – generally between debt securities holders and shareholders. Among others, transfer is caused by higher levels of debt (leveraging) and the valuation of assets. Control over accounting is “a powerful weapon” in the hands of corporate directors. It gives them a large measure of sculpturing the company’s income account, the financial picture of the corporation overall, and the financial position (risk) of the investors in particular. Countless scandals of misrepresentation and the world debt crisis show that the law still does not properly deal with these nexuses and improvement and refinement is desperately needed.

The third them addressed deals with establishing a world monopoly of corporate valuation with IFRS/XBRL. The IASB wants to develop, “in the public interest”, a single set of globally accepted financial reporting standards. And it wants to cover 95% of all enterprises worldwide: a world monopoly for the valuation of property, for the formulation of accounting rules as a standard for the competition of companies. The IASB is conducting this revolution in financial reporting via the “eXtensible Business Reporting Language” (XBRL). The technical form creates pressure for a uniform accounting world, in order to achieve compatibility for data transfer with subsidiaries, administrative bodies, investors. The standard of accounting and auditing can be materially changed beyond spirit and purpose and democratic legitimisation.