David Phillips

A critical ability for almost everyone is to understand and be able to apply the ‘cost/benefit’ principle. How do we get the most value for the least effort, the optimal solution with limited resources? This issue is as relevant for regulators and standard setters, who have a critical role to play in creating an efficient and effective regulatory structure.

The IASB is aware of this challenge and is regularly reminded of its importance. To standard setters, the cost/benefit equation is constantly changing and requires extensive judgement. Its largest challenge is to be able to respond quickly to a changing environment. Only a few years ago their cost/benefit equation was calibrated at a macro level. Here it must be commended for what it has achieved and last weeks formal announcement from the SEC of its ‘roadmap’ for the migration to IFRS by 2014 is evidence of its success.

This is not a done deal, but many would argue that now is the time to recalibrate the equation around the utility of the current reporting model. Put simply, if the information corporates are asked to produce isn’t used, this should question its value. A good example is the creation of intangible assets at acquisition, a costly process for companies and auditors and one which adds little value to investors and significant frustration quotient.

There is sound reasoning behind requiring an analysis of the intangible elements of acquisition cost. If investors, despite being given the data, ignore it, then this needs to be recognised and taken into account in the standard-setting process.

This should extend to a reassessment of the IASB’s forward agenda, as was amplified recently by a public letter sent by the Corporate Reporting User Forum to the IASB and FASB in which it set out its priority areas - the ‘Conceptual framework’ project, cashflow statements, performance reporting, net debt and intangibles and acquisition accounting. CRUF’s priorities do not align well with those of the IASB. One can argue the IASB’s agenda is coloured by convergence with US GAAP, but is this a sustainable position given the shifting sands of change?

Cost/benefit is a complex issue and one in which interested parties may hold different perspectives, but it is an issue accountants and standard setters cannot afford to ignore.

David Phillips is the senior corporate reporting partner at PricewaterhouseCoopers

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