We recently looked at a think-piece on the virtue of simplicity and concision in financial reporting…

…and to extend that train of thought, I came across an article titled Less is More in Standard-Setting, written by Peter Reilly , a non-executive director at the UK Endorsement Board. Here are some extracts:

• There are currently around 27 projects in the (IASB’s) backlog. Some are of major importance to investors – business combinations and cashflow, for example – and others seem to me to be a lot less critical. I assume that all will require some dedicated resourcing, thus diluting the time available for high-priority projects.
• Even for high priorities, the timetables seem very extended. I helped to draft a comment letter on business combinations in mid 2024, and the current goal is to decide the ‘project direction’ in 2026. It is hard to win investor engagement when it takes two years just to decide the project direction.
• …I think that many accounting bodies have struggled to get investors involved in the standard-setting process. This is partly due to the glacial timetables but it is also down to long and turgid questionnaires. There is an art to designing a good survey to ensure the answers are useful. The questions should be short, few in number and unbiased. Even then, outreach usually works better with targeted interviews rather than surveys, which can tax the life force of the participant.
• I sometimes wonder how the Scottish independence referendum would have turned out if the question had been: ‘Do you want Scotland to enjoy a happy, prosperous future as a free country or do you want it to stay shackled to the rest of the UK?’ Asking the appropriate question is much harder than it looks.
• Coming back to the agenda consultation, I think the IASB is potentially asking the wrong question. I have been told that the last consultation received more than 70 suggestions for new projects, which is not surprising.
• My suggestion is simple but radical. I would like to ask three questions. Should the IASB attempt to do less? Should it do it better? And should it move faster? I think the answer to all three would be a resounding yes.

Well yes, but getting a resoundingly positive answer to those three questions would tell the IASB almost nothing about what it should actually do in any given area. I agree about the difficulty of meaningfully drawing investors into the standard-setting process, and wrote about that several times in the past (here for instance); the point about asking appropriate questions is certainly correct (although Reilly’s illustration of it is somewhat florid). But it’s not as if the IASB doesn’t know all that. The two-year period on the cited project does indeed seem long, but the comment letter Reilly mentions was one of 143, many of them quite long and detailed: why solicit the comment letters at all if not to give all that effort on the part of respondents the consideration it deserves? And if the IASB didn’t solicit such lengthy letters, if for example it asked commenters to confine themselves to little more than Yes/No answers to specified questions, then the input would be valueless. To illustrate, one could probably craft a relatively simple and direct question on intangibles (an area cited by Reilly as a priority), along the lines of: “Do you think the IASB should make it a priority to review the current requirements for recognizing and measuring intangible assets?” Some respondents would say yes, some would say no. And some of those responses, whether they go one way or the other, would be based on extensive experience and knowledge and research and on a weighing of factors. But others would essentially boil down to “Yes, but I don’t really care if they don’t,” or “Yes, but only because I’m not affected,” or “No, because it would make my financial statements look worse from my point of view, even if that might be meaningful to others,” and so on and so on. How can one meaningfully assess the utility of the Yes or the No without understanding the the entity-, industry- or culture-specific analysis and motivation and history? All of which takes a lot of people-hours on both sides of the equation.

An alternative thought experiment then: what if the IASB announced that it would no longer do anything at all, except in emerging areas of major urgency (and maybe not even then, noting for example that it has resisted calls to develop a crypto-specific standard)? Many might regret that nothing will ever change in the areas of (again using Reilly’s priority areas) cash flow, business combinations and intangibles, but the world has managed this long with things as they are, and as conditions grow more volatile and turbulent, it’s ever-more futile to think that tweaks to, or even major overhauls of, accounting standards can do much to assist in long-term resource allocation decisions. Maybe the “less is more in standard-setting” argument is most coherent if extrapolated into a case for no new standard-setting, almost ever. How many would vote for that, I wonder…?

The opinions expressed are solely those of the author.