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April 4 — Financial reporting is at peril of losing relevance if the accounting standards it is based on don't reflect the economic reality of transactions or capital-generating activities, chief national rulemakers from Australia and Germany said.
They added that some of those transactions and activities aren't on current corporate books.
More specifically, in current business environments in which intangible assets and negative interest rates figure in valuation and security analysis, accounting rules should recognize that situation, said Kris Peach, chair of the Australian Accounting Standards Board, and Andreas Barckow, president of the Accounting Standards Committee of Germany.
“Intangible assets is one of the major black holes that we still have” in financial reporting prescriptions, Peach said April 4 at the biannual International Forum of Accounting Standard-Setters. She cited examples of internally-generated research and development, extractive activities, licenses and trademarks.
Reporting outside of generally accepted accounting principles focuses on those issues, and carried prospects of standard-setters being “overtaken” and “marginalized,” she said at the gathering in Toronto.
“And I think that will be a very, very sorry day,” Peach said during a presentation by the vice chairman of the International Accounting Standards Board and an IASB senior staff accountant.
“I'm really worried we might be sidelined,” the AASB chair told Bloomberg BNA later. She reiterated her point that rulemakers could at a minimum call for footnote disclosures about intangibles, rather than prescribing amounts in the front of the financial statements.
The topic of the reporting on the repercussions of negative interest rates arose in the context of IASB's research project on discount rates. Tricia O'Malley, chair of the International Forum of Accounting Standard Setters, noted the current prohibition on recognizing negative interest rates, which she said may become “a more urgent issue.”
Barckow followed up on that later with a question put to the forum: “Do we run the risk of financial reporting losing relevance when assessing” the economics of transactions?“Are we reporting figures that don't bear relation to economic reality anymore?”
“Are we reporting figures that don't bear relation to economic reality anymore?” he asked.
Peach and Barckow spoke during a presentation by IASB Vice Chairman Ian Mackintosh and the board staff's Michelle Sansom on the current and near-future work plans for the London-based board. IASB issues international financial reporting standards, or IFRS.
The board is completing a list of major rulemaking projects, including several executed jointly with the Financial Accounting Standards Board.
IASB plans to issue a standard on insurance contracts and a conceptual framework by the end of this year.
IASB recently conducted extended outreach for its “agenda consultation” on what to take up next in its rulemaking. It also is weighing whether to focus more on smoothing the implementation of new and forthcoming standards.
The latter would effectively afford a more stable accounting platform for companies that may be weary of change, as Mackintosh suggested.
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