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WORLD OF OPPORTUNITIES

Towards a common accounting language

Firms must find a balance between complying with accounting standards and
growing their business. Reports by KAN KWOK LEONG

CONSTANTLY evolving accounting rules are putting

a strain on businesses struggling to comply, but this
should not hamper efforts to develop a common and
robust set of standards that can help accurately
reflect the state of a company's financial health.

Beyond the bottom line: One key initiative aimed at

producing better and more relevant information for
investors, lenders and other decision makers is the
move towards integrated reporting. - ST FILE PHOTO

International accounting bodies have been working

for years towards producing a common language for
accounting that can be understood across all
jurisdictions. In a world where capital flows are
practically borderless, there is a need to be able to
describe the financial health of a company in a
common language that is easily understood by all
investors, said Chiang Joon-Arn, a partner at
accounting firm EY.
"When a Nigerian businessman can communicate to
a Brazilian supplier in the common language of
Spanish or English, then the business goes much
more smoothly and they will have fewer
misunderstandings," said Mr Chiang.

For over a decade, the International Accounting Standards Board (IASB) has worked with the United States
Financial Accounting Standards Board (FASB) towards a convergence of accounting standards. While
progress has been made on this front, some industry players say that final convergence is still some way off.
What's more, attempts to bridge the two standards through more extensive disclosures "introduces
complexity on a scale that may not be commensurate with the benefits", said Chng Sok Hui, chief financial
officer of DBS Group.
While the benefits of convergence are undisputed, the journey to achieving it is likely to be painful,
especially for smaller businesses. Companies have to deal with the continual accounting standard changes
as the accounting boards, regulators and practitioners work to strike a fine balance between achieving
technical purity versus the increasing costs of compliance. Corporate leaders will have to juggle the twin
challenges of managing these changes and growing their businesses.
"While the baby steps to take us to the end goal may be painstaking, it should not deter us from moving
towards the direction of a quality set of converged standards," said Mr Chiang.
The rules are also changing as accounting bodies seek to address the flaws in accounting standards that
became apparent during the financial crisis, such as the incurred loss provisioning model used by banks to
value assets. While these proposed changes are necessary to restore trust in the global banking system,
complying with these new standards will not be easy, industry players said.
Quality not quantity
More complex standards could also lead to more clutter being added to financial reports, making them less
easily understood by their users as unnecessary information is added in order to comply with new rules.

"Providing quality financial information does not mean overloading users of financial statements with
information. Rather, the focus is on presenting meaningful financial information to help investors, users and
analysts to better understand how the company is doing. It is a challenge to achieve the right balance," said
Mr Chiang.
Ms Chng added that the need to produce detailed financial reports within stipulated deadlines puts added
pressure on firms, while the prescriptive wordings of disclosure requirements makes it more difficult for firms
to produce information that is meaningful to stakeholders.
"While we continuously adapt accounting standards, we cannot lose focus on the fundamentals. Quality
information needs to be relevant, and understandable," she said.
Holistic approach
To prepare for changes to accounting rules, companies need to focus on a more holistic approach to risk
management.
This starts with the management, board of directors and audit committees, who must strengthen the culture
of ethics and financial integrity throughout their business, said Philip Yuen, chief executive officer of Deloitte
Singapore.
"They can also drive this change by influencing the allocation of appropriate resources to hire qualified
professional accountants and building the necessary infrastructure within the organisation to support quality
financial reporting," he said.
Businesses should also seek out professional help to keep up with changing accounting standards in order
to produce high quality financial information.
"Professional bodies such as CPA Australia organises over 90 events a year to help its members keep
abreast on various aspects of accounting, business and finance operations," said associate professor
(practice) Themin Suwardy, SMU School of Accountancy and CPA Australia's Singapore Divisional
president.
Key initiative
One key initiative aimed at producing better and more relevant information for investors, lenders and other
decision makers is the move towards integrated reporting, which aims to produce a more accurate picture of
a company's health beyond just the bottom line.
Mr Yuen said: "Integrated reporting (IR) is an important evolution in corporate reporting whereby readers will
gain insights into the companies' strategy, sustainability, governance, performance, future outlook and
competitive positioning."
Simply put, IR combines financial and non-financial information with a forward-looking perspective that is
designed to help readers understand all the components of business value - and how they may be affected
by future opportunities and risks.
Such non-financial information - including how sustainable a business is and its impact on the environment is key to making informed lending and investing decisions, and is increasingly being demanded of from
companies by their stakeholders.
DBS was the first listed company in South-east Asia to join the pilot programme for IR, and the lender
incorporated elements of it in its 2012 Annual Report. Ms Chng expects IR to gain momentum in Singapore
and the bank is actively engaged with its development. While larger publicly listed companies in Singapore
have already started the journey towards adopting IR or are considering it, there is more resistance among
smaller enterprises which need to weigh the costs and benefits of producing an integrated report.
Prof Suwardy said: "Personally, I think jumping directly to integrated reporting is a tall ask for most
Singaporean companies. If a company does not already have a mature Corporate Social Responsibility,
Environmental or Sustainability reporting, they should start with baby steps."
The move towards IR is yet another example of how the evolution of accounting standards brings with it a
great deal of challenges that corporate leaders must properly manage without hampering the growth of their
businesses.
This is the second in a four-part business strategy thought leadership series that looks at how
Singapore companies and business leaders can better prepare for the challenges ahead and
capitalise on a world of opportunities in Asia and beyond. The series is brought to you by CPA
Australia, in conjunction with this years CPA Congress that will be held on Oct 9, 2013