The complexity of IFRS and additional volatility in disclosed financial results has often resulted in the need to correct results later. But too often executives bonuses that were paid out remain that way.

Less innocently, there have been several instances of fraud uncovered whereby results were inflated so that executives could reap high incentive rewards. For example, Fannie Mae, a huge US government guaranteed home mortgager, has been found by US courts to be officially corrupt, after six years of fraudulently declaring results so that executives could receive hundreds of millions of dollars in bonuses.

Results re-statement or correction highlights the need to ensure that the rules of any incentive plan have a “claw back” provision. This is not confined to Fannie Mae and other American companies. Many UK and Canadian companies have this provision in their plan rules. Australian boards should consider installing such provisions in their companies’ incentive plans, a practice not seen in Australia to date.

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