2.1.5 The specification of contractual terms in the measurement model

Printer-friendly versionPDF versionOne clear shortcoming of today’s reporting model is its focus on realized operations and its ignorance of a large set of tacit and contractual obligations that often determine much of future economic activity. Organizations, their clients, their business partners, and suppliers are linked by a network of contracts that are formal and informal. Many of these contracts present larger liabilities for future operations than most reportable events. For example: * a power utility may have a fuel supply contract that is 10% over current market price for the next 10 years * a business concern may outsource most of its supply chain and as a result may have consensual obligations even if these are not contractual * A business concern that has “return” agreements with their clients for inventory that is obsolete or cannot be used or sold * Company with a long term practice of supporting local and communal projects to enhance the environment * Company with many social welfare practices relative to the employees that cannot be stopped * Company with passive obligations for environmental cleanup that are not recognized These types of instances and the non-reported legal contingencies are often much larger than the liabilities typically reported in annual reports under contingencies. Only a probability-based system of contingency reporting can provide the necessary description that is useful and realistic in this an information society. Where clear obligations (and benefits) are not available a deeper standard of disclosure applies where disclosure must be prepared such as: * legal, operational, and contractual contingencies * management compensation contracts at a much deeper level…(including a taxonomy of types of compensation) * Hyperlinks to fuzzy contracts or non-standard financially engineered contracts * Description of corporate litigation * Description of government investigations * Etc.