Standard setters laundry list of dilemmas Accounting

Monday, 01 October 2001


    No piece of machinery can work to its full potential if the gears are rust-laden or if dirt or grit limits its efficiency of output. Sometimes all it needs is a degree of care and maintenance. At other times it might require replacement of component parts.

    There are even times when all that is required for progress to be made is to stop people from kicking the casing, groping with their hands to fiddle with wires or pinching bits off the hardware. The machinery of standard-setting in this country is in desperate need of maintenance for its credibility has been threatened by rust, dirt and grit that's making the task of pushing out critical guidance needed by those preparing financial statements. One of the issues that is creating difficulties and is a major challenge for the Australian Accounting Standards Board is the fact the AASB must now deal with both public and private sector matters. The reforms under the Corporate Law Economic Reform Program (CLERP) envisaged the merging of two boards, the Australian Accounting Standards Board and the Public Sector Accounting Standards Board.

    The welding of the two sectors has produced two recent case studies that clearly demonstrate what impact deeply entrenched accounting practices in the public sector will have on board deliberations. A poignant illustration of public sector petulance is the intention of the AASB to include in its exposure draft on directors' and executives' remuneration disclosures provisions that require more comprehensive disclosures for boffins in the public sector such as heads of departments, top executives and government ministers. There is already public disclosure of aspects of ministerial remuneration and, of course, that of other politicians, but totals relating to superannuation entitlements remain a bit of a mystery. Then there's the desire of Canberra's mandarins to ensure people's lives are not made much easier by leaving disclosures strewn across a range of public documents rather than agreeing to consolidate the data for an individuals remuneration in a single place. An argument mounted by some in the public sector is that the AASB is the inappropriate body to set disclosure rules relating to politicians and that Federal Parliament should be responsible for setting its own disclosure requirements. There is an inherent lack of intellectual rigor in this argument.

    The accounting standard setter has been given the job of filling in the gaps to set down how the disclosures should be presented and what must be included in remuneration so the objectives of the Corporations Act are adequately met. The AASB is responsible for both sectors and there should be one answer for disclosures relating to executive and director remuneration across the two sectors. Public sector resistance to the proposals is curious, given that the push to deal with the issue of directors' and executives' remuneration in detail has largely come from politicians riding the corporate governance wave. Senator Stephen Conroy, the shadow minister for financial services and regulation, has persistently called for the AASB to push on with its project on directors and executives remuneration in order to add more flesh to the bones of the corporate law requirements. Conroy's focus has largely been on the reluctance of companies to value options and the inability of the regulator to deal with enforcing disclosure requirements because of an absence of an accounting rule setting down guidance on appropriate valuation issues.

    The board is acting to get the requirements out and an exposure draft on remuneration disclosures may be finalised before year's end. Transactions that are the same in substance ought not have different accounting answers because an entity lives in the public sector. They do have different answers for particular types of transactions and those are liable to cause a degree of conflict at board level. The recent veto of an Urgent Issues Group abstract on financial assistance to universities is a clear indication that the two sectors require some kind of fusion. Why any entity would account for a sum of cash as revenue in the public sector and as a liability in the private sector when the transactions are ostensibly the same in substance, is difficult to explain to Mr Average in suburbia. Divergent treatment of the same type of transaction does not make sense and creates an unnecessary divide between two sectors. Members of the UIG attacked the board's veto of that abstract during a recent meeting on the grounds that the AASB did not have access to all the relevant information and presentations laid before the UIG as it considered whether the university grants should be regarded as sums of money with strings attached or a gift.

    Regarding them as sums of money with strings attached would make the amount a liability, which results in revenue being recorded only when an entity extinguishes an obligation owed to another party or parties. If it regarded as a gift – non-reciprocal in techie-speak – then a university would be required to book the sum as revenue upfront. The vote to call the sum a liability was near-unanimous – one out of the 16-members voted against the abstract – and the document went to the AASB. It was knocked on the head by the board. Of the 10 members of the board eligible to vote only eight were present at the meeting. Four members, which included three a with heavy public sector bias, voted the abstract down. Three voted for the document to remain intact and one board member abstained. This veto also raised the prospect that the tensions between the UIG and the AASB have caused a loss of business confidence in the process. Relations between the two institutions have become strained over the past year because both bodies have developed a view on the strengths and weaknesses of the other. The AASB has criticised the UIG for failing to produce definitive guidance and for being a little less than capable in engaging in technical debate. That was something members of the UIG were hardly going to take lying down and it was the AASB's turn to cop return fire when board members vetoed two UIG rulings.

    The vetoes of the abstracts on university grants and subscriber acquisition costs in the telco sector exposed fundamental weaknesses in the AASB's procedures that effectively mean anything it vetoes has the potential to go into the "black hole" of the AASB work program. In the case of the subscriber acquisitions abstract there was the opportunity to panel beat the content to suit the AASB's preferences. The university grants abstract was sent back to the UIG. Group members learnt what the AASB does with so-called urgent matters when they snatch them off the UIG. Nothing. The matter deemed so urgent and so critical for resolution is then placed in a long queue of matters to be dealt with by the standard setter. It doesn't get dealt with urgently because of other priorities on the standard setters' laundry list of dilemmas. During September's UIG meeting members of the group were concerned that a solution to a problem had been agreed – guidance that filled a gap – and the AASB veto deprives the market of having guidance. An absence of guidance means that divergence in reporting practices that can result in a degree of unpleasantness between auditors and their clients. UIG members demanded the board deal promptly with issues where divergence has been identified, dealt with and the answer provided by the UIG has been junked by the AASB.

    For the board to veto an abstract and then not move to clarifying the area of accounting with its own interpretation is unjust, unfair and bordering on immoral. Accounting practitioners and company executives want timely guidance to end uncertainty and divergence across both sectors. That, after all, is what the UIG was set up to do and the AASB's exercise of the power of veto has led to a level of nervousness about whether accounting firms, preparers and users of financial statements can trust the current processes.


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