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Financial Reporting Brief – A Twenty-Year Reflection

Financial Reporting Brief: January 2023

Time does not stand still for any man, and the ‘golden age’ of retirement has arrived for the writer.

It is interesting to reflect on the almost twenty years in existence of the Financial Reporting Brief. Little did one know when writing the first article in the series in October 2003 that it would continue to run and run, with this being article 232 and some 35,000 words.

It is an evolving product, with the sole focus being to provide information and insight to our clients and to our own people. It is currently distributed monthly to thousands of individuals. From the initial writing through to the review and edit process to publication and distribution, there have been a number of people with a part to play over the years.

History of accounting, as we know it, is interesting with two of the milestones being (1) the invention of double-entry book-keeping with major credit due to Luca Pacioli, a sixteenth century Italian monk. Many years ago when there was substantial manual input in the accounting process, a major client had a bookkeeper who referred to it as ‘the door side and the window side’ – it worked for her and thankfully they didn’t change the position of desks; and (2) the Scots are accredited with raising the profile in the 1800s by introducing the title of Accountant. Having reached year 178 of Deloitte in existence, it is clear that our founders were fast to the market.

Could it be that the Financial Reporting Brief has its own place in the history of financial reporting services in Deloitte? Vincent Van Gogh, the famous Dutch painter, was only fully recognised posthumously for the greatness of his work. Maybe there will be a similar fate to Van Gogh for the writer post-retirement.

Gilbert O’Sullivan, the Irish songwriter and performer, achieved stardom in the 1970s – there may not be many reading this who remember him in his heyday. One of his songs had the line ‘looking back over the years and whatever else that appears’ – a line that is on constant repeat in the writer’s mind recently.

So, the next few paragraphs include comment on some of the major milestones in the financial reporting world since our first Financial Reporting Brief was published.

 

Revolution in 2005

In the early noughties, Europe wanted to change away from National Standards to one set of Standards throughout Europe. So began the momentum towards the introduction of International Financial Reporting Standards in 2005 for the consolidated accounts of companies listed on a recognised European Stock Exchange. IFRS has long since become a leading, globally accepted financial reporting language, including huge numbers of entities not required to comply but choosing to do so for business and commercial reasons.

Those of you who were in the financial reporting world in 2005 will have fond memories, or maybe nightmares, about the ‘fun and games’ of deciding on appropriate accounting policies, preparing adjustments from ‘old GAAP’ to IFRS, presenting the first IFRS financial statements including the ‘transition’ statement and dealing with the volume of new disclosures. All done, and those of you coming later to the scene should erect monuments to the first pioneers.

Of course, IFRS is continuously evolving and having dealt with the first introduction, in the years since the financial reporting world has been charged with responsibility to implement major new standards on Business Combinations, Fair Value, Revenue, Leases, Operating Segments, Insurance and perhaps the most daunting area of all – Financial Instruments, on which there were two new standards. Not a year goes by without further changes – great or small, they all have to be dealt with. Insurers will be particularly challenged in 2023 with implementation of IFRS 17.

 

Out With The Old and In With The New

When the writer first qualified, accounting standards had just about reached Statement of Standard Accounting Practice (SSAP) 20 on Foreign Currency. Over the next three decades, the world went ‘mad’ with the proliferation of SSAPs, moving on to Financial Reporting Standards. So much so, the Financial Reporting Council knew that it was getting out of control with all the individual standards, and a clear deficit in coherency and consistency.

Along came the International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs) to offer the basis of a solution with simplified IFRS. Thus, the single standard of FRS 102 began to take shape, with major work done to amend and add sections to IFRS for SMEs mainly to achieve compliance with the accounting requirements of company legislation. It has been the Bible since 2015, and some might say reduced the load for those not required to or not choosing to adopt IFRS.

Not much has changed since it was first introduced although recently there have been considerations of accounting in the areas of both revenue and leases.

FRS 101 came along at the same time to provide a reduced disclosure IFRS framework primarily aimed towards use by subsidiaries of groups adopting IFRS. A godsend for many companies in Ireland where we have so much inward investment.

 

Even The Law Must Change

The writer’s memory does not go back as far as 1963, but it was a big year! The original Companies Act was brought into legislation. It took more than 50 years to come up with a comprehensive new Act.

In the years leading up to 2014, a landmark legislative project was under way producing the largest substantive Act in the history of the State; running to 1,448 sections and bringing together 17 Companies Acts from 1963 to 2013. It was brought into effect on 1 July 2015 with a number of different company types and providing for the full company lifecycle from incorporation to everyday administration and management to winding up and dissolution. The Act incorporates the rights and duties of its officers, shareholders and members as well as creditors.

In 2013, the European Accounting Directive was published providing the framework for single company and group consolidated accounts throughout Europe, thereby helping to enable consistent accounting by all European companies.

 

The Current Hot Topic – The Weather

Any of you who currently dwell in or grew up in rural Ireland, particularly, as the writer did, will know and remember the everyday topic amongst most folk was the weather – so important to crop yields, livestock welfare and even the conditions for the next big game – and as the writer bows out the single biggest concern of corporate reporting is the worldwide social and environmental concern of the weather – at the more globally fundamental level of climate change.

Climate change is probably the single biggest challenge facing the world, and when one considers record-breaking temperatures, forest fires, floods and many other related disasters or near-disasters it is clear that in many parts of the globe it is a very real concern now and becoming more so into the future. If we want to preserve our planet for future generations we must all act now.

Together with other environmental, social and governance (ESG) factors – biodiversity, human conditions amongst others – it has led to a louder and louder outcry in recent years for sustainability reporting. It is no longer considered adequate to present financial statements with a lightweight narrative commenting on environmental concerns. Investors and others demand more – they need better quality information to enable investment and other economic decisions to be made.

Regulators and standard-setters are taking action and with a great degree of alacrity. At a global level, the International Sustainability Standards Board (ISSB) is leading the charge with two draft standards already published – general disclosure requirements and climate change – and a number of others in the melting pot. Europe is showing strong intent with the recent adoption of the Corporate Sustainability Reporting Directive (CSRD) – to be brought into Member State legislation by 2024 – and the presentation of twelve draft sustainability standards to the EC for consideration and adoption.

All roads lead to 2024 for the initial introduction of sustainability standards. It will, undoubtedly prove to be the case that those that fail to prepare may prepare to fail. Investors and others will expect quality information and will not be forgiving of anything less. Ultimately, they have justifiable expectations of a comprehensive corporate reporting framework with proper integration of both financial reporting and sustainability reporting.

 

Conclusion

The two decades from 2003 to 2023 have quite probably been the busiest in corporate reporting history. It will continue to be so as we move forward with sustainability reporting which will pose a strong challenge to companies for the years ahead. There will be major challenges in the financial reporting arena as well.

The Financial Reporting Brief will continue its life in safe hands and continue to provide value to you, our clients and our people.

Resources and Publications

Governance in focus — On the board agenda 2022

Our annual review of board topics will stimulate your thinking and help prepare you for the year ahead. Across the board, expectations of business are rising and it is this demanding environment which shapes the articles in this year’s publication.

 

Corporate Reporting Insights 2022 — Surveying FTSE reporting

Our survey of the annual reports of 50 companies from among the FTSE 350 highlights the need for more connectivity in reporting on purpose, people, planet, prosperity and resilience. We also share our findings in respect of procuring assurance.

 

IFRS Model Financial Statements 2022

The Model for 2022 illustrates the presentation and disclosure requirements of IFRS Standards and also contains ‘best practice’ examples.

 

IFRS in your pocket 2022

IFRS in your pocket is a comprehensive summary of the current IFRS Standards and Interpretations along with details of the projects on the standard-setting agenda of the International Accounting Standards Board.

 

IFRS e-learning website

Our IFRS e-learning platform allows external users to complete over 40 of Deloitte’s IFRS e-learnings free of charge with 6 million+ uses in recent years.

 

Understanding the differences between U.S. GAAP and IFRS Standards

A comprehensive 380-page publication focusing on some of the most common and significant differences that may affect financial statements when converting from U.S. GAAP to IFRS Standards and vice versa. Updated to 2022.

 

Corporate governance reporting highlights - areas for future focus

Key messages and expectations for further improvements in corporate governance reporting and examples of better disclosure.

 

IFRS Foundation Trustees' sustainability reporting initiative

Summary of continuing developments.

 

New IAS Plus resource page

Highlights some of the key accounting and disclosure issues to be considered by entities that may arise as a result of COVID-19 in preparing financial statements.

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