The adoption of International Financial Reporting Standards (IFRS) by Australia in 2005 was part of a worldwide move towards a single set of global accounting standards, a trend that has coincided with other significant trends such as the globalisation of business, development of increasingly complex financial instruments, and a general push to greater transparency in reporting and disclosure to meet the needs of increasingly active investors.
Australia was one of the early adopters of IFRS in 2005 - and this is because of Australia's early recognition, that with the pace of globalisation, the movement to a global set of accounting standards is a logical transition. In a world where businesses and investments operate on a global level - companies, investors and other stakeholders all gain from having one set of accounting standards. Companies can prepare reports for subsidiaries located in different countries on the same basis; a lower cost of capital can be accessed by companies because investors can easily understand and compare financial information across jurisdictions; and the long-debated problem of regulatory arbitrage can be minimised. In economic terms, having one set of accounting standards allows the market to operate more efficiently - with the consequent benefits of an efficient market.
However, since introduction of IFRS, the accumulation of accounting rules and accompanying disclosures, the pace of change and the growing complexity of business, have led to calls for reductions in, and simplifications of, various requirements. The number of international reviews calling for the rationalisation of disclosures is evidence of this need being identified in relation to financial reporting.
Work of the Task Force
The FRC appointed a Task Force to review this issue from Australia's perspective and to consider what might reasonably be done within the modern global accounting framework to address complexity concerns. Chaired by a senior company director, the Task Force consists of preparer, user, regulator, and standard-setter members. As part of our review, the Task Force requested and received submissions from global and mid-tier accounting firms and reviewed the work and publications of a number of bodies around the world. Complexity in financial reporting is a global concern, not merely an Australian one.
The Task Force concluded that the way forward is to pursue a number of steps to manage complexity, recognising the sophistication of contemporary corporations and investment markets, and harnessing the innovative forces of information technology. We started by identifying sources of complexity to better understand why it has become an issue. We then looked at how complexity is reflected in presentation of results. This analysis has led to our suggested strategies for managing this complexity.
The Task Force has not sought to specify solutions to complexity, but rather to inform, influence and stimulate the debate on how best to manage it. From this process we anticipate that regulators, standard setters, users and preparers will determine specific actions which can be taken to manage the ongoing development of this most dynamic of activities - the reporting of the financial outcomes of the modern organisation.
Acknowledgements
I would like to thank the members of the Task Force - Mr Michael Coleman, Mr Kevin Stevenson, Ms Judith Downes, and Ms Tanya Branwhite, for their hard work and efforts in the Task Force and in the preparation of this report. I especially would like to recognise the work of Mr Michael Dwyer, who sadly passed away during the course of the Task Force's work.
I would also like to express my appreciation to parties who have made submissions to the Task Force, in particular the accounting firms. Thanks as well to the Department of the Treasury, especially Ms Jane Cheung, who was responsible for the final compiling and editing of the report.
Bruce Brook
Chairman, FRC Managing Complexity Task Force
29 May 2012