standard setters and the industry in order to achieve sound and effective reporting. topical issues are ias 39 / 32 and ias 30. a recent roundtable in basel, chaired by bis general manager andrew crockett, confirmed the need for a coordinated dialogue regarding corporate governance, accounting and auditing, and transparency and oversight. transparency and disclosure let us now turn to transparency. transparency is a prerequisite for effective market discipline. in theory, the rationale for greater transparency is that companies, particularly financial institutions, present information asymmetries to the markets. simply speaking any company is better informed about its own operations than outsiders are. if the company publishes more information to facilitate the assessment of its assets and liabilities, its strategies and risk profile, markets can function more effectively, at least in theory. markets contain disciplinary mechanisms, which stimulate sound management and adequate financial performance. for companies which are well - run, well - financed, and transparent, costs of raising capital will tend to decline. the reverse goes for ill - managed firms. more generally, well - run firms, by being transparent, can obtain better terms and conditions in transactions with informed and rationally - behaving market counterparties. in essence, this is market discipline. market discipline, however, works only if market participants have sufficient information, which enables them to assess companies ’ activities and their inherent risks. but more disclosure as such does not necessarily result in greater transparency. on the contrary, rather than just expanding their disclosures, firms should pay attention to the quality of information as well. in short, information disclosure needs to be timely, reliable, relevant and sufficient. importantly, public disclosure of high quality information contributes to corporate governance. that is to say, the information can be used to hold directors and managers accountable for their decisions and the firm ’ s performance. transparency, in other words, serves the accountability of companies to their stakeholders. one aspect of public disclosure which should not be overlooked is the costs involved. information is not a free good. on the contrary, developing, implementing and maintaining up to standard information systems is costly and takes time. for that reason, accounting standards, should, above all, require relevant information. however, there is a professional risk of an overdose of information, which must be heeded by both standards setters and regulators. pillar 3 let me illustrate this by explaining the basel committee ’ s efforts to increase transparency. market discipline through enhanced public disclosure is one of the main three elements

cash flow statements. arguably, this is no longer sufficient to determine what risks are being run by firms, particularly firms active in financial markets. modern financial instruments and techniques, such as derivatives or securitisation, enable them to change their risk profile, sometimes even at very short notice. so more information should be provided about a firm ’ s risks. that is why banking and insurance regulators encourage disclosures by financial institutions on risk exposures as a means of enhancing market discipline. the iasb is working hard on this as well. another issue is the context of accounting. international accounting standards mainly deal with financial measurement and disclosure. they do not extensively consider the setting in which financial reporting takes place, such as the firm ’ s corporate governance or risk management, the role of the audit committees or the internal and external auditors. auditing standards, however, take a different approach. they first define the conditions to be met by the company environment, before describing what should be audited, and how this should be done. interestingly, prudential authorities follow the same route. the basel committee ’ s guidelines, the nederlandsche bank ’ s regulation on organisation and control or the pensions and insurance supervisory authority ’ s principles on internal control start from the primary responsibility of the management and the directors for sound governance. they then elaborate the requirements to be met by these functions. so the question is whether international accounting standards should deal more comprehensively with the setting for accounting and reporting within the firm and address accounting governance more explicitly. internal reporting procedures and compliance, an active role of the audit committee, a separation of responsibility for and financial interest in financial reports, for example, are most relevant for sound reporting. perhaps accounting standard setters should no longer take them for granted. without an appropriate environment of sound corporate governance and risk management, accounting standards resemble a safe car without a qualified driver! in short, accounting standards need to be adapted to changes in corporate practices and financial markets. modern standards should be principles - based, take account of sound corporate governance, and be risk - oriented. to get this across, there is a constructive dialogue between accounting standard setters, like iasb, and regulators, such as the basel committee on banking supervision. although they have a different scope and different objectives, their interests clearly run parallel in many areas, for example in accounting for loans and proper provisioning practices, or in transparency about risk management. in these fields, the basel committee appreciates the dialogue with accounting