By Lachlan Colquhoun

Photos Julian Kingma

Moving to new accounting standards is not like flicking a switch from off to on. Successful implementation, says Kris Peach FCA, can be a lengthy and highly political exercise that requires compromises along the way.

“It is incredibly important that you understand everybody’s perspectives and have a clear goal you want to get to,” says Peach, who has served as chair and chief executive of the Australian Accounting Standards Board (AASB) for nearly five years and is also a member of New Zealand’s Accounting Standards Board.

“The other thing I have learned is that you need to be prepared to compromise, so long as it keeps you moving along the right path, and view the process as a journey or evolution,” she says.

It’s easy for the local accounting profession to view new standards as impositions that create more pain and expense than benefits, at least in the short term. If not handled effectively, implementation can hit roadblocks of pushback. Empirical and relevant data is vital as a way of “reality checking” and keeping the process based on evidence. But on a human level, it requires engagement and discussions at an early point.

The push to engage stakeholders

Kris Peach FCA

Peach says she has strived to broaden the range of stakeholders the AASB consults as standards are phased in, and to get the profession at the “forefront of feedback”.

“It is a challenge to get people engaged, because there are so many other things which compete with their time and sometimes it all seems too esoteric,” she says.

“But there’s no point in getting to the end after a standard has been issued, and saying ‘well, if you’d just come and talked to me I would have told you that wasn’t going to work.’

“The AASB welcomes feedback in any form. It doesn’t have to be a formal written submission, just sharing your particular example is helpful. Attending the many outreach events is also an easy way to provide constructive feedback.

“The reality is the majority of people and organisations leave implementation until the last minute, and that’s when it starts to get complicated. It also limits the benefits they can hope to get out of the changes, because they haven’t changed their processes to make things more efficient.

“The IASB and AASB understand the importance of clearly communicating why a new standard is needed, however this message still gets lost. Directors should challenge their CEOs, CFOs and auditors on why the changes are occurring, and accountants should be well placed to respond. New accounting standards don’t change the economic fundamentals of a transaction, but more transparency for investors may have an impact.”

Standards, by their nature, are developed by regulators, but they exist for a reason: because there is a gap between practice and what users expect and need, and this is always evolving.

“You do hope there are benefits which come out of this process on both sides, because if investors have more and better information on which to make decisions, then theoretically the cost of capital should be lower and preparers should be able to tell their story more effectively to investors, so this is a key part of the broad picture,” says Peach.

The end of special purpose financial reporting

Peach admits to some challenges during her tenure at the AASB. While there may not have been full-scale battles, there has been robust debate, she says.

She has presided, for example, over proposals to move away from special purpose financial reporting (SPFR). These proposals would mean entities lodging publicly available financial reports with the Australian Securities and Investments Commission (ASIC) no longer being able to self-assess their reporting requirements.

As Australian accounting standards are based on International Financial Reporting Standards (IFRS), it has fallen to the AASB – and Peach – to manage the end of SPFR in Australia.

The AASB has proposed a two-phase approach, beginning with for-profit entities and then moving to the not-for-profit sector. Final proposals for the for-profit sector will be released later in 2019, with a view to a final standard by mid-2020.

Expanding the number of companies required to prepare general purpose financial reports has been a contentious issue, with an end to the distinction between entities previously categorised as “reporting” and “non reporting”.

While acknowledging the pain involved for many non-reporting entities, Peach makes the point that ultimately the change will be good not only for users of financial statements, such as auditors, investors and regulators, but also for the companies that prepare them.

“From a preparer’s perspective, it’s just going to be so much clearer what you have to do,” she says. “You are not going to have continual conversations about choosing your reporting requirements. It will be simple and clear, and that is going to remove a lot of risk and uncertainty for directors and preparers, and make it much more transparent for all users.”

“It will be simple and clear, and that is going to remove a lot of risk and uncertainty for directors and preparers…”

Ultimately, the change in standard – and this is true of many standards – is all about comparability, and making sure that the financial statements of entities have been prepared against the same set of criteria.

“I’ve been very concerned… that it’s just not easy for people to pick up financial statements and understand the basis on which they have been prepared,” says Peach. “From an accounting standards point of view, this is not an acceptable outcome and completely justifies the exercise we are going through.”

A future without printed financial reports

If there is any constant in modern accounting, it is the presence of change. In addition to the phasing out of special purpose reporting, there are the impacts of new standards and guidance on climate-related financial risk and also rules around financial instruments and revenue standards. A little further over the horizon are changes to leasing standards.

While this is a lot for accountants to adapt to, Peach believes the end result will be a profession more prepared to roll with technological, cultural and regulatory changes, and to be ahead of them rather than playing catch-up.

“I look at where we are at now, and think this is a wonderful opportunity for accountants,” she says. “The skillsets that we’re going to need are much broader, and I think the future is a lot more about communication, valuation, and using technology to deliver this.”

Standards, says Peach, are part of the bedrock of fundamentals that guide the profession, but also enable more forward-looking accountants to innovate and drive progress.

The future she sees is one where there are no printed reports and where users are given greater access to underlying data. Such changes will make operational and financial reviews more important than they are today.

“The profession is going to have to think more about wider corporate reporting than just the financial statements,” she says.

“This means that people will be much less pigeonholed and it’s going to be a much broader conversation, and I think it is really exciting to be part of that.”