IFA: Eleven principles for effective business reporting processes

Comments from ACCA to the International Federation of Accountants, August 2012.

ACCA is pleased to have the opportunity to comment on the above Exposure Draft (ED). The ED was considered by ACCA’s Corporate Reporting Global Forum, whose views are included in the responses below.

Introduction and summary

We agree that guidance about the setting-up of processes for reporting can be of assistance for entities. This guidance is most useful when it builds on existing established principles, without replicating them. Reporting issues and processes are one of the more common subjects of initiatives internationally, and ACCA would support efforts by the bodies concerned to draw on each other’s work to date.

In view of the above, we believe that it would be possible and desirable for the ED to contain guidance which is less general, and begins with a clear statement of aims.

ACCA questions whether a set of principles can be established which is homogenous across the entire reporting function, from preparation to review and approval, and as between internal and external reporting. We believe that in attempting to establish principles with such a broad scope, the ED is less able to analyse specific reporting processes and situations, and consequently, loses some of the impact it might otherwise have had.

Our specific comments on areas of the ED are set out below, and are expressed as answers to the particular questions raised by the PAIB Committee in the ED. They include a number of factors, such as timeliness, which we believe should have a greater emphasis in the principles or the guidance.

ACCA’S specific comments on the questions raised in the Exposure draft

The terminology

1. Does the title Eleven Principles for Effective Business Reporting Processes fit in the context of this IGPG, or should it be replaced by a different or more refined title or term?

The title is appropriate for the current content of the IGPG. If, according to our preference expressed above, the principles and guidance were more specific, for example by focussing on areas where particular reporting challenges can arise, then the title should also be more specific to reflect this.

2. Are the reporting definitions in Appendix A suitable for this guidance? Can or should they be further clarified?

The definitions need to be reviewed to ensure that they encompass internal reporting processes to the same extent as external ones. A particular instance of this is the definition in Appendix A of a stakeholder, where all of the examples given are parties with an interest in external reporting, including the more obvious ones such as regulators and society. Given that there is also a constituency of stakeholders for the internal reporting process, the Appendix needs to specify who these are, at least principally.

It is also difficult to understand how performance can be defined in terms of certain policies and procedures, when the word implies actions. It appears that the definition of performance should be enhanced, to focus on the implementation of the policies stated.

The principles

3. Do the principles cover all the fundamental areas for establishing a benchmark for good practice in implementing effective business reporting processes?

We have two comments in response to this question, as follows:

Scope of the principles

The principles aim to encompass reporting generally, although this is difficult to do when the purposes, risks and uses of external reporting are not always the same as those of internal reporting. An example of this concerns the use of reporting technology (section H). When reporting moves from an internal to an external basis, different software might need to be used, in addition to the fact that the interested stakeholder groups change. The ED does not tackle this matter, other than expressing what may well be an undue level of optimism about the ability of XBRL to connect disparate systems (guidance point A.4).

It may be possible to resolve the above issue by expanding the guidance to include points specific to internal reporting, and those particular to external reporting.

However, as set out below, ACCA believes that certain points are of sufficient importance to be included within the paragraph containing the principle, rather than in the guidance where they may consequently appear to be of lesser importance.

How the principles are expressed

As referred to above, ACCA believes that the principles are in the main worded generally, and would be more effective if the content is more specific, especially when covering matters which, in practice, constitute key issues for a reporting entity. In particular:

  • Principle C – Planning and Controlling the Reporting Processes: the notion of control needs to be developed to distinguish the preparation and internal review of reports. The application guidance could then emphasise the importance of segregating these two roles and of adopting a disciplined approach, including the need to allocate adequate time to the review process.

  • Principle F – Selecting Standards and Frameworks: an entity sometimes cannot select the external reporting framework, as this may be prescribed by law or regulation. In addition, there are circumstances in which it may not be clear which is the most appropriate accounting standard to adopt. The required framework may be set by law or be of a “comply or explain” type, and the entity will then need to consider the extent to which the requirements satisfy stakeholder needs. On the other hand, where the decision as to which accounting treatment or the accounting policy to adopt may not be clear-cut, guidance would be helpful on the general process of resolving this difficulty, such as through internal consultation.

We also note that neither Principle C, nor Principle A – Effective Reporting Processes, mention timeliness in addition to the concepts such as planning and quality, which are referred to in the principles themselves. Whilst timeliness is mentioned in guidance point C.1, we believe that it merits greater prominence due to its importance for entities.

Similarly, whilst guidance point A.3 briefly refers to integrity and transparency, ACCA feels that concepts relating to neutrality and balance in reporting are of sufficient importance to be the subject of a greater amount of guidance material, and would merit a mention in the wording of Principle A, alongside the issues of quality and effectiveness.

The guidance

4. Is the application guidance for each principle adequate to guide good practice?

Certain application guidance points are either obvious, or are already in force through other pronouncements. Their removal from the ED would draw attention to the remaining guidance.

For example, guidance point J.5 advises entities to act in a way in which they will already be doing, should they need to (encouraging internal and external auditors to recommend reporting process improvements when necessary).

Point B.2 (guidance on determining roles and responsibilities) makes much the same point on professional behaviour and competence as will be found in the Code of Ethics of IFAC member bodies. The ED could instead, include a general reminder that it should be read in conjunction with (amongst other pronouncements) the professional accountant’s Code of Ethics.

5. Are there other resources on implementing effective reporting processes in organisations that should be considered for inclusion in the appendices?

The Resources section (Appendix B) contains a list of other publications on reporting processes, both from IFAC and other bodies, together with a synopsis of each. In view of the efforts of the various bodies and the resources expended, ACCA would prefer the ideas in existing publications to be used and developed in the ED (or not used, with an explanation if appropriate), rather than just noted as additional reference material.

Other issues

6. How useful do you find this IGPG?

As explained above, ACCA believes that the guidance would be more useful if it committed itself to specific aims, and built on work already performed in the same area by IFAC and other bodies.

The aim of establishing principles which set out processes applicable across the range of reporting has resulted in material of a more generalised nature than it would be otherwise need to be. This detracts from the ED’s applicability to specific issues arising in practice.

7. Do there need to be additional IGPGs in the area of business reporting?

The PAIB Committee does not state how it came to initiate this project. It may well have done so in furtherance of IFAC’s mission statement, which includes contributing to good practice. 

Going forward, ACCA would prefer the Committee’s output to be more focussed on particular reporting issues, and for guidance to be produced in response to specific needs which have been expressed by IFAC’s stakeholders.