For the first time in more than a decade, the chairman of the International Accounting Standards Board (IASB) paid a visit to South Africa. SAICA was delighted to welcome Dr Andreas Barckow, who became chairman of the IASB on 1 July 2021.
Dr Barckow is an experienced and highly regarded leader in the field of international accounting. Since 2015, he has served as President of the Accounting Standards Committee of Germany. His contributions at both an international and European level have helped shape the development and future direction of IFRS standards around the world.
Joining him was Bruce Mackenzie, the new chairman of the International Financial Reporting Standards (IFRS) Interpretations Committee. He has served as a member of the International Accounting Standards Board (IASB) since October 2020, filling the Africa seat, and continues to serve as an IASB member in role as Chair of the Committee.
The IASB is an independent group of experts with a mix of practical experience in setting accounting standards, in preparing, auditing, or using financial reports, and in accounting education. Broad geographical diversity is also required. The IASB is also responsible for approving Interpretations of IFRS Accounting Standards as developed by the IFRS Interpretations Committee.
At the IASB 2022 Chairman event hosted by SAICA, Dr Barckow said the visit was an indication of the fact that the IASB views SAICA and the members of the accounting profession in South Africa and on the broader continent as important contributors to the IASB.
‘This is only the second overseas trip I have made since becoming chairman,’ Dr Barckow said. ‘We want to ensure that the continent continues to be seen as an important member of and participant in the IASB.
Dr Barckow listed the priories of the IASB as follows:
- New ways of digesting financial information − Digitalisation is transforming companies and other organisations more fundamentally than the business world has ever seen. As companies are transformed, so are their finance and accounting functions, and in turn, their financial statement audits.
- Scanning the horizon for unforeseen issues − Horizon scanning is vital for considering how emerging trends and developments might potentially affect current policy and practice. This helps policymakers in government to take a longer-term strategic approach and makes present policy more resilient to future uncertainty. This is vital as it takes an average of five to six years for IASB to develop a new standard. Developments like cryptocurrency and intangibles should be foreseen in order to be appropriately addressed.
- Sustainability reporting developments − Many members have urged the IASB to be more open regarding sustainability reporting. The new International Sustainability Standards Board (ISSB) will aim to develop sustainability disclosure standards that are focused on enterprise value. Communication between the two organisations will be critical to ensure that the issues regarding the uncharted territory of sustainability reporting are clarified over time. High-quality corporate reporting and connectivity between financial statements and sustainability-related financial disclosures will improve the quality of information provided to investors.
- The goal is to drive globally consistent, comparable and reliable sustainability reporting using a building blocks approach. This approach will allow national and regional jurisdictions to build on that global baseline to set supplemental standards that serve their specific jurisdictional needs.
- Communication is key − The IABS is continually seeking new ways to improve communication, which is seen as critical to ensuring its effectiveness. On this point, Dr Barckow noted that he had undertaken to visit South Africa in order to hear from local members and that the IASB highly valued contributions from SAICA. The goal was to listen to issues and criticisms, and address these where possible and, where appropriate, to work on solutions together.
- ‘We have to always be realistic about what can be achieved, by when,’ he added. ‘The IASB is an SME. We have 40 technical staff working on standard setting across 25 projects. For this reason, the frequency and number of changes have to be kept in check. Timeliness remains an issue as it is a challenge to wait for several years to create a standard, but at the same time we cannot compromise on quality.’
THE THIRD AGENDA
The IASB holds a public consultation on its activities and its work plan every five years. The objective of the Third Agenda Consultation was to gather views on:
- The strategic direction and balance of the IASB’s activities
- The criteria for assessing the priority of financial reporting issues that could be added to the work plan, and
- The financial reporting issues that could be given priority in the IASB’s work plan
Dr Barckow reported that stakeholders had asked for greater focus on digital financial reporting, which presents significant advantages for preparers, auditors, regulators, users and analysts. However, there remains a need to determine precisely what this entails and how to define it comprehensively.
The understandability and accessibility of accounting standards was also raised and the IASB looking at what can be improved in this regard.
The key comments raised by stakeholders were as follows:
- The importance of the matter to investors
- Whether there is any deficiency in the way companies report the type of transaction or activity in financial reports
- The type of companies that the matter is likely to affect, including whether the matter is more prevalent in some jurisdictions than others
- How pervasive or acute the matter is likely to be for companies
- The potential project’s interaction with other projects on the work plan
- The complexity and feasibility of the potential project and its solutions
- The capacity of the IASB and its stakeholders to make timely progress on the potential project
A total of 70 new projects had been submitted, and these had to be reduced to seven, which have been added to the IASB work plan. Included are the investigation of whether narrow-scope standard-setting is needed in relation to climate-related risks, and the creation of a reserve list of two projects that could be added to the work plan only if additional capacity becomes available.
The matter of intangible assets was highlighted as key. The criteria for recognising and measuring intangible assets – identifiable non-monetary assets without physical substance − include computer software, licences, trademarks, patents, films, copyrights and import quotas. Dr Barckow noted that past standards were largely created to deal with the world of manufacturing, whereas our current environment is now far more service orientated.
Statement of cash flows and related matters is another key matter that the IASB will consider, with the goal for improving how information is communicated in the financial statements, with a focus on information in the statement of profit or loss. It is envisaged that the new standard in the regard will be made available in 2024.
The IASB is also discussing feedback on the disclosures, goodwill and impairment, and is prioritising performing further work to make tentative decisions on the package of disclosures about business combinations and analyse specific aspects of the feedback on the subsequent accounting for goodwill.
THE ROLE of THE IFRS INTERPRETATIONS COMMITTEE
Bruce Mackenzie’s presentation focused on the work of the IFRS Interpretations Committee, the interpretative body of the International Accounting Standards Board (IASB). The Interpretations Committee works with the IASB in supporting the consistent application of IFRS Accounting Standards.
‘The committee works closely with the IASB to support the consistent application of IFRS Accounting Standards by responding to application questions that arise in practice,’ he said. ‘We respond by publishing agenda decisions that often contain explanatory materials or by considering possible changes to the requirements. Our aim is to ensure that stakeholders gain a common understanding of the requirements.’
He stressed the importance of the consistent application of IFRS accounting standards. Enhancing the international comparability and quality of financial information, enables investors and other market participants to make informed economic decisions. Mackenzie noted, however, that this does not mean that everyone is expected to ‘do the same things in the same way’.
‘All Interpretations Committee projects begin as a question regarding a standard,’ he explained. ‘The process is designed to allow any stakeholder to submit a question and the process is transparent. The committee considers new issues that have been raised and decides whether they should be added to its agenda. For those issues that are not added to the agenda, a tentative agenda decision is published. These tentative agenda decisions are open to public comment.
‘We take into account matters such as the interactions between new and existing standards, and the application of existing standards to new transactions. With the business environment continually evolving, we need to ensure that standards are relevant and pertain to issues that affect companies around the world, and whether the standards will have a material effect on financial statements. We also consider whether the matter can be resolved efficiently and if it sufficiently narrow in scope.’
Both guests stressed that they were committed to maintaining strong ties with South Africa, and to developing closer ties with local stakeholders. Feedback and criticisms were vital, they agreed, and in the best interests of the developments of standards for the profession.
While it is impossible to make sure that all members are happy with decisions that are made regarding standards, it remains fundamentally important that everyone contributes and makes their observations known.
‘We cannot promise to address everyone’s concerns to their liking, but we can promise that we will take their criticisms and requests into consideration,’ said Dr Barckow. ‘If we are not aware of complaints, we cannot address them, which is why we encourage constant and ongoing communication.
‘We are also aware that standard-setting activity leads to changes. Changes cause disruption. And while disruption may be desirable for some − those who proposed we engage in standard-setting − changes affect every stakeholder, including those that did not suggest or were even opposed to us doing so. Therefore, we must be judicious in deciding when to change course by taking active projects off the agenda or adding new ones to it.’
Mackenzie noted that it was both important and encouraging to acknowledge that issues pertaining to South Africa were generally relevant across the globe. ‘It is vital to realise that questions impacting the local scenario actually have relevance everywhere. That is why it is so critical to build consensus when it comes to the work we do. We have been gratified to have had the opportunity to share experiences and observations with the large number of people and organisations we have engaged with during this rewarding and informative visit.’