Financial Reporting (CIFR) issued its final report of recommendations, a year after

it was set up. The report, geared towards requirements for US companies,
highlighted proposals in five practical areas, three of which could be interpreted
as US-specific issues. The other two areas were enhancing the accounting standards-
setting process and improving the substantive design of new standards.
Although these recommendations certainly placed critical importance on the users of
financial statements, there was a call for greater dialogue between users,
preparers and auditors, as well as a more substantial input into the standard-
setting process. Suggestions included ‘increased field work for proposed standards
and formalising post- adoption review of standards, as well as periodic assessments
of existing standards’. Furthermore, there was a clear indication that actual
accounting standards themselves ‘do not clearly articulate their underlying
objectives and principles’.1
The results of this survey, although drawn solely from a preparer perspective, echo
many of those concerns, and suggest similar ways of improving the financial
reporting process.
Avoidance of complexity
Respondents recognised that much of the complexity in accounting derives from the
intricacies of the actual transactions themselves and is, therefore, beyond the
control of accounting standard setters.
Nonetheless, what was equally evident was that for certain areas of financial
reporting, namely, hedge accounting, financial instrument disclosure, pension
accounting and the accounting for share-based payments (SBPs), much of the
complexity encountered by respondents (see Fig. ES1) was unnecessary. Given the
common concerns of members (for all areas sampled) about understanding and
fulfilling the requirements of specific standards, it is clear that there is an
element of avoidable complexity.
Therefore, and perhaps especially so, given the reliance put on the standards
themselves by preparers of financial statements, there was a strong indication from
the survey that standard setters need to be mindful of how the requirements of
standards can affect preparers. Thus, when asked how complexity in these areas of
financial reporting could be reduced, a considerable number of respondents
consistently pointed to the drafting of the prevailing standard (see section 7).
This often scored higher than factors that were specific to that particular area.
This is particularly relevant with many of the projects currently being undertaken
by the IASB. The proposals to amend standards relating to financial instruments,
accounting for retirement benefits and income taxes which are currently under
review by the IASB, may significantly impact the requirements of the extant and
resulting standards. The fact that any changes are often burdensome, especially
when considerable investment has been made in understanding existing requirements
is also evident from the survey, where respondents indicated that much of the
complexity encountered in applying the standards was in the first year, and eased
subsequently.
Both for new standards and subsequent amendment to existing standards, standard
setters need to ensure that they fully analyse the wants of users, while taking
into account the costs faced by preparers. This is clearly a difficult balance to
strike. Again, as is evident in the results from this survey, respondents largely
viewed the resulting financial information as useful to users (internal and/or
external). At the same time, however, concerns were raised about the time needed
for, and costliness of, producing that information.
there was a strong indication from the survey that standard setters need to be
mindful of how the requirements of stand