What’s on the minds of IFRS preparers?
Published on 15 November 2013 0 comments
Long, excessive, overwhelming, verbose, boilerplate, repetitive – these are the one-word descriptions used by preparers to sum up their financial statements, during a poll at our Meet the Experts conference. Our global IFRS event, which I attended this week, revealed growing concern among preparers, regulators and investors over the increasing length of companies’ annual reports. Speaking at the conference, IASB board member Stephen Cooper described them as “ballooning”, and PwC partner and former SEC chief accountant, Wayne Carnall, said that financial statements are growing in length so much “they risk becoming a legal document that no one reads”. So it’s in everyone’s interest to address this problem.
And what is the cause of this increase in disclosures? According to the poll of conference participants (of whom half were preparers), it’s accounting (45%) and regulatory requirements (39%). Russell Picot, HSBC’s Group Chief Accounting Officer, told us about his exercise a few years ago to reduce the length of the bank’s financial statements, which, despite the effort, were back to the same length within three years as a result of increasing disclosure requirements (for more information on this, see our article at ‘Speak to the user, not the regulator’).
But it’s not simply the length we should be concerned about: the quality of the information within the financial statements needs addressing. Cutting clutter and categorising content ‘intelligently’ while remaining compliant is not an easy nut to crack. The goal though is an annual report that communicates rather than merely complies. I suggested in this blog back in February that every disclosure should be accompanied by an explanation of its significance to the business. Even if we don’t go that far I still think it would be a good discipline to ask oneself the question before including a disclosure.
It was interesting to see other emerging themes on the day and hear preparers’ and investors’ concerns around the IASB agenda, and trends in reporting more generally. We have shared some of the highlights on our webpage pwc.com/meettheexperts, but I’d like to bring out one other point: 70% of attendees were concerned or significantly concerned about potential divergence in IFRS application caused by regional interpretation and endorsement processes. IASB chairman Hans Hoogervorst said that he didn’t expect to see any further divergence at EU level and that most of the local differences in IFRS application were in fact related to transition and were therefore short-term. But with growing discontent in the EU seen in calls for ‘prudence’ to be explicitly included in the conceptual framework, and attempts to link this to the IASB’s future funding (see also World Watch article ‘EU set to put conditions on IASB funding’) is this concern is well-founded?
As usual, I welcome your thoughts.