Future of financial reporting in spotlight
A joint ICAS/IASB event in London examined the future direction of international financial reporting.
The future of corporate reporting and the role of financial reporting standards were amongst the topics debated at a discussion event hosted by ICAS and the International Accounting Standards Board (IASB) in London on 1 December.
The event focussed on two key projects for the IASB – their consultation on the future agenda for standard-setting, and the conceptual framework for financial reporting, both of which are fundamental to the future direction of travel for international financial reporting. It also covered aspects of the IFRS Foundation Trustees’ Review of Structure and Effectiveness, which addressed some of the overarching issues for the IASB.
Future of standard-setting
The IASB’s proposed evidence-based approach to standard-setting met with broad support from participants, with calls for better engagement between the IASB and academic community to ensure that proposed research is sufficiently robust and focused so that the results of the research can be used effectively.
There was a plea for the IASB to ‘stop tinkering’ with minor changes to standards, and to focus on areas where fundamental changes are needed. But it was noted that major projects can be slow to progress – this is in large part due to the level of external engagement the IASB undertakes as part of its due process, and the sheer diversity of views to take account of in settting international standards.
The role of stewardship
One of the most hotly-debated areas of the IASB’s conceptual framework has been the stewardship objective of financial statements. Whilst the role of stewardship has been strengthened in the current draft of the framework, many speakers thought it should be given further prominence.
The stewardship objective is important in helping users to assess the performance of management in delivering the business model.
Professor Mark Clatworthy presented a new ICAS/EFRAG research paper (due to be published shortly) which finds that financial statements are considered more important compared with other information sources when assessing stewardship. Further information on this research is available by contacting firstname.lastname@example.org.
Performance reporting - including the definition of profit, and financial statement presentation - was highlighted as one of the crucial future projects for the IASB. Profit is one of the key numbers that investors focus on, but is not defined in the conceptual framework – whether a single number can be found which represents financial performance remains to be seen.
Increasingly, it was felt that financial statements tell only part of the story of corporate performance, with many companies now relying more on intangible assets such as human innovation and intellectual capital – which are not normally recognised in the financial statements - to drive future profitability.
Corporate reporting of the future
The wider notions of corporate performance and reporting are increasingly important. IASB board member Gary Kaburek noted that the IASB can’t exist in isolation, and needs to engage in the wider debate.
Other speakers supported the idea that IASB should collaborate with other bodies like the International Integrated Reporting Council (IIRC) to ensure that financial reporting remains at the forefront of reporting developments internationally.
Any comments on the IASB’s current agenda consultation can be emailed to email@example.com.
Speakers: Stefano Zambon, University of Ferrara; Andrew Buchanan, BDO; Peter Clark, IASB; Mark Clatworthy, University of Bristol; Gary Kaburek, IASB; Liz Murrall, Investment Association; Filippo Poli, EFRAG; Hugh Shields, IASB and David Wood, ICAS.