Complexity Hindering Purpose of Financial Reporting, Says Panel at Baker Tilly International Summit

18 Jun 2012

Complexity in financial statements is making them increasingly difficult to interpret, hindering users as they seek to understand the performance of companies, according to an international panel of high-profile industry experts.

Disclosure overload, internationally consistent accounting standards, unification of the profession and harmonisation of regulation were among the topics addressed by speakers from organisations including the US Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants, and the Canadian Institute of Chartered Accountants at Baker Tilly International's annual North America Summit held last week in Vancouver, Canada.

Jim Castellano, chairman of Baker Tilly International, said: "Disclosure has ballooned in recent years with companies and governments required to provide more and more financial information. This additional complexity is hindering the very purpose of financial reporting - to provide shareholders, creditors and other users with useful information. The profession needs to stand back and make financial reports simpler and easier to understand. What we heard from the experts on the panel is clear evidence in North America of positive steps towards this goal".

Relevant and Scalable Statements

The newly created Private Company Council (PCC) in the US will identify, deliberate, and vote on proposed changes for private companies, using a decision-making framework currently under development.

"The ultimate aim is to narrow down what is relevant for users of private company financial statements, making them more relevant as well as less costly and complex to prepare," said Castellano. "It's a question of scalability; to come up with a better cost-benefit balance within the reporting regulations, that is responsive to the private company sector.

"Issues that we expect will fall initially under the gaze of the PCC include variable interest entities, uncertainties in income tax and issues around fair value measurement and disclosures, especially for non-financial assets."                     

Consistent Standards

Unification of the profession at every level will benefit the users of financial statements and recent legislative moves to unify the profession in Canada should be seen as a benchmark for other countries, believes Castellano.

"Having one set of rules for all accountants in Canada will help will help to enhance trust and respect in the profession and eliminate confusion in the market place that currently exists through uncertainty about what all these different accounting bodies are doing," he said.

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