Accounting standards now ‘outrageously complex’

Accounting standards now ‘outrageously complex’

Australian Financial Review – Edmund Tadros – Friday 13 December

Accounting standards have become so “outrageously complex” that it is difficult for investors to understand financial statements, while the regulation of the area is “overly-complex, cumbersome and archaic”.

That’s the view of Senator James Paterson and MP Jason Falinski, two Liberal members of a committee looking into auditing standards.

“I think it’s fair to say the current regulatory arrangements are overly-complex, cumbersome and archaic, and evidence suggests may be standing in the way of a more efficient industry structure and technological innovation which would facilitate better outcomes and probably reduce costs as well,” said Senator Paterson, the chairman of the joint parliamentary committee looking into the regulation of auditing in Australia.

The committee has now received almost 100 submissions and had three days of public hearings.

“I’m open-minded and I will follow the evidence where it leads,” he said.

Mr Falinski flagged that the accounting oversight bodies may need to be consolidated.

A submission from Treasury identified the multiple bodies involved in the oversight, standard-setting, disciplining and regulation of financial reporting.

Aside from the corporate regulator, the government bodies involved include the separate standard-setting bodies, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board, and the oversight body, the Financial Reporting Council.

The AUASB did not comment, while the AASB and the FRC did not respond to a request for comment.

“A probable conclusion from this inquiry is that the government needs to be leading a discussion about more seamless functioning, if not merging the functions of accounting standard bodies,” Mr Falinski said.

The Liberal MP is also critical of how difficult it is to understand financial reports.

“Accounting standards have become outrageously complex,” Mr Falinski said.

“That’s detrimental to the proper functioning of corporate entities and to investors in the capital markets.”

He told a public hearing into audit quality that the complexity of accounting and auditing standards had got to the point where “even highly qualified people looking at a set of accounts can sometimes be looking at the same thing but from totally different angles”.

The comment was met with agreement by a partner at big four firm EY (the former Ernst & Young), who admitted even the firm’s experts found the standards complicated.

“So we would agree with Mr Falinski’s comments that financial reporting is incredibly complex,” said Chris George, a partner at EY and its professional practice director.

“In the last 12 months we’ve had two new accounting standards come into play. Both have been incredibly complex.

“We have another one coming in this year which has been incredibly complex. Our clients struggle to understand these accounting standards. We find them complicated.

“So I’m sure that the general public would find them complicated as well, which really did go to our recommendation of looking at: is the financial reporting framework fit for purpose, and should there be changes made to make it better suit the needs of those users?”

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