The only constant is change

21 July 2017

By Henry Daubeney

As of 1 July 2017 I have taken over as PwC’s Global Chief Accountant and Head of Reporting. I spent the months leading up to this transition shifting my focus from being an assurance engagement leader to being the leader of a global network of IFRS specialists. I quickly realised that IFRS was on the verge of massive change, but more than that, we live in a world that is changing so fast that everybody should be challenging what they do and why they do it, and more importantly - what and how should they be doing it in the future?

As a leader, what does one say to a group of people who are facing unprecedented change? The iconic words of General Electric’s former CEO Jack Welch comes to mind: “Change before you have to.” Results will inevitably be more positive if they are achieved from a place of desire to change rather than a place of obligation.

With that in mind, I contemplated the areas of change that would impact my role in the near future.

Fundamental accounting changes are here

You may have been hearing about new IFRSs on the horizon so much in the past few years that the information now gets sent to your mental spam folder. IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers are both effective for annual periods beginning on or after 1 January 2018. If companies aren’t dealing with these major changes already they need to start as soon as possible, because they are already operating in the comparative period of their first year of adoption. IFRS 16 Leases follows a year later, and insurers are set to adopt IFRS 17 from 2021.

The communication revolution has begun

As part of the 2016’s agenda consultation, the IASB announced Better communication as their central theme looking to 2021. Their current projects include Principles of Disclosure, Primary Financial Statements and the Definition of Material. This is part of a continued drive to make financial statements fit for purpose in a changing world.

The IASB is not the only party making an appeal for better disclosure. The Task Force on Climate-related Financial Disclosures released its final recommendations report in June. Wider corporate reporting has also received increased attention in recent years. Investors are also becoming more demanding in their expectations of the information that companies should produce.

Companies are under more pressure than ever before to produce relevant and reliable information on a real-time basis, in addition to the daily challenges of doing business. As we embark on the communication revolution, is there a need for a fundamental review of how companies report financial and non-financial information to their stakeholders?

The future is now

Today, six out of the ten biggest companies by market capitalisation are in the technology industry. However, the traditional measures of value and performance (e.g. net asset value and profitability) don’t support the value that the market places on these businesses. On that basis, financial reporting as it exists today does not reflect the intangible value that the market ascribes to these businesses.

As we enter the fourth industrial revolution, how will financial reporting change to reflect the new paradigm?

I don’t expect that we will come up with solutions to these challenges overnight, but I do encourage everyone to face each day with an open mind - ready to change before you have to.

Henry

This week's guest blogger is Henry Daubeney, Global Chief Accountant and Head of Repoting. Connect with him on LinkedIn here.

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