TORONTO, Jan. 27 /CNW/ - We urgently need a global debate on how to
reduce complexity in financial reporting and how to accelerate the move
towards principles based financial reporting standards.
The need for such a debate is the key conclusion of the first major
research project undertaken by the Global Accounting Alliance (GAA), a group
of the world's leading professional accountancy bodies.
A financial reporting environment where judgement, rather than adherence
to a rulebook, allows the preparers and auditors of accounts to focus on the
true economic substance of financial transactions.
"It is clear from our research that a body of principles based
international standards is viewed around the world as the best basis on which
to report the economic substance of financial transactions, and that further
steps are needed to ensure that principles are embraced more fully," said
Kevin Dancey, GAA Chair. "This could include a professional judgement
framework that is accepted by regulators and others around the world. It is
also clear that there is a strong interest in turning back the tide of growing
complexity in financial reporting. But there are major legal, cultural and
regulatory challenges that will need to be tackled if we are to achieve these
objectives. The report identifies some of the important questions that need to
be addressed, but the only way to resolve these issues will be through a
global debate involving all key stakeholders."
Dancey, who also is President and CEO of the Canadian Institute of
Chartered Accountants (CICA), added: "The GAA is arranging a number of
roundtable events where regulators and other stakeholders in financial
reporting around the world can begin discussions on the ideas emerging from
the research. This will assist the broader adoption of principles based
standards and address the increasing complexity and detail in company
financial statements. We look forward to making a full contribution to that
The GAA report, Getting to the heart of the issue - Can financial
reporting be made simpler and more useful?, is published today. It draws on
interviews conducted in early-mid 2008 with financial regulators from the UK,
Canada, Australia, China, the United States of America, South Africa, France,
the European Commission and international regulators. Interviewees also
included a leading US litigation lawyer and representatives of the world's
leading accounting and auditing practices.
NOTES TO EDITORS
1. The Global Accounting Alliance (GAA) is now an alliance of ten of the
world's leading professional accountancy bodies, which was formed by
nine Institutes in 2005. The GAA is intended to promote quality
services, share information and collaborate on important
international issues. It works with national regulators, governments
and stakeholders, through member-body collaboration, articulation of
consensus views, and working in collaboration, where possible, with
other international bodies, especially IFAC.
2. The GAA report, Getting to the heart of the issue - Can financial
reporting be made simpler and more useful?, is available for download
from the GAA website at www.globalaccountingalliance.com
3. The GAA is calling for the following questions to be debated by key
international stakeholders in financial reporting:
(i) Should an agreed international framework for accounting
standards be adopted - with a clear hierarchy comprising (i)
the conceptual framework which sets out the fundamental
principles; (ii) outcome-oriented and principles based
standards which establish how the fundamental principles are
applied to particular subject areas; and (iii) sufficient
additional guidance to facilitate practical implementation of
(ii) Should guidance be provided for preparers and auditors on the
exercise of judgement in the application of principles based
standards and on the documentation of reasons for the
judgements made, for example by means of an internationally
accepted professional judgement framework?
(iii) Should regulators be encouraged to accept a reasonable degree
of variation in accounting treatments and to take a more
effective, outcome oriented approach to regulating, engaging
more experienced staff as necessary to support this approach?
As a first step, should we encourage a debate with regulators
as to what is a "reasonable degree of variation" in accounting
(iv) Should a single definitive set of general purpose financial
statements be retained, or should we accept that it is
impossible to fulfil the needs of all users with one set of
(v) Should standard setters, in conjunction with business,
investors and other users, be encouraged to actively seek to
drop requirements considered redundant or superfluous?
(vi) How can company boards be encouraged to focus on the
communication value of the financial statements rather than the
compliance aspects? Why are Warren Buffett's letters regarded
as so effective?
(vii) By reference to existing precedents and market practices in
this area, should an international framework for high level
summary financial statements be developed which can provide
information suitable for retail and less sophisticated
investors, encapsulating summary financial information drawn
from the general purpose financial statements and balanced and
informative narrative information?
(viii)Should general purpose financial statements be developed and
published in XBRL format so as to form an information database
which allows users to drill down to whatever level of detail is
(ix) Should company communication be improved through the use of
clearer language, less jargon and coded language, and a focus
on clarity and transparency?
(*) How has the recent financial crisis affected the debate on
The Canadian Institute of Chartered Accountants (CICA), together with the
provincial, territorial and Bermuda Institutes/Ordre of Chartered Accountants,
represents a membership of approximately 74,000 CAs and 10,000 students in
Canada and Bermuda. The CICA conducts research into current business issues
and supports the setting of accounting, auditing and assurance standards for
business, not-for-profit organizations and government. It issues guidance on
control and governance, publishes professional literature, develops continuing
education programs and represents the CA profession nationally and
internationally. CICA is a founding member of the International Federation of
Accountants (IFAC) and the Global Accounting Alliance (GAA).
For further information:
For further information: Peter McLean, Manager, Communications CICA,
(416) 204-3268, firstname.lastname@example.org; David Wood, Project Leader: Executive
Director - Technical Policy, The Institute of Chartered Accountants of
Scotland, E-mail: email@example.com, Telephone: +44 131 347 0240