Widespread adoption of International Financial Reporting Standards has increased financial transparency and lowered risk for investors, as measured by the 2008 Opacity Index. Opacity works like a hidden tax on business, costing countries growth, companies profits and investors higher returns.
Additional improvements in corporate governance and compliance with voluntary codes of conduct have helped raise the scores of most of the 48 countries ranked by risk in the index. The United States, however, has seen some deterioration in its standing due in part to delayed effects of the Sarbanes-Oxley Act of 2002.
The top 10 markets (with 2007 ranking):
1. Finland (2)
- 2. Hong Kong (3)
- 3. Singapore (16)
- 4. Sweden (9)
- 5. Australia (7)
- 6. Denmark (5)
- 7. Austria (9)
- 8. Ireland (9)
- 9. United Kingdom(1)
- 10. Germany (13)
The Opacity Index measures five factors: corruption, legal system efficiency, economic and enforcement policies, accounting standards and regulatory effectiveness. Together, these factors form the acronym CLEAR. Higher levels of opacity in each of the CLEAR factors indicate poorly functioning governments, which increases the cost of doing business, as well as the risk.
Whereas most measures of risk look at low-frequency, high-impact events, such as coups d'etat, nationalization of industries and earthquakes, the Opacity Index measures high-frequency, low-impact risks, which include corruption and unenforced laws and policies. It also measures the rights of debt- and equity holders around the world, the adequacy of corporate governance and the quality of accounting standards.