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Strong messages against EU carve-in carve-out proposal at ASCG anniversary event

  • Accounting Standards Committee of Germany (ASCG) (lt blue) Image
  • Germany Image

03 Jul 2018

On 2 July 2018, the German standard-setter ASCG celebrated 20 years of its existence by hosting a festive event in Berlin that saw official addresses and a keynote speech by representatives from politics, industry and national and international standard-setting as well as two panel discussions on financial reporting in the times of changing values and technological disruption.

The welcome address by Prof Dieter Truxius, Vice-Chair of the Administrative Board of the ASCG and one of Germany's leading experts in accounting and controlling issues related to German family-owned businesses, already revealed a clear message that would resurface in all speeches and discussions. He noted that the German industry is extremely critical of proposals that might lead to modifying IFRSs during the EU endorsement process or even after they have been endorsed. Prof Truxius pointed at the potential of serious negative consequences for all companies based in the EU and operating internationally:

  • European companies could ultimately be threatened with exclusion from the global capital markets.
  • Europe's influence on the development of IFRSs could diminish.
  • European companies whose shares are listed in different trading venues could face higher costs if they have to prepare their financial statements according to IFRS and EU-IFRS in future.

He concluded: "Such trends lead to disparities in international accounting and prevent cross-border comparability of financial statements. Ladies and gentlemen, we should take a firm stand against this trend."

Dr Katarina Barley, Federal Minister of Justice and Consumer Protection, also picked up on the topic and noted how important it is that internationally operating companies have a common accounting language. Jean-Paul Gauzès, President of the European Financial Reporting Advisory Group Board, pointed at the long and trusted relationship between the German standard-setter and EFRAG, who have been working together for the European public good since 2001.

The keynote speech, which took the event into the direction of the motto of the afternoon, was delivered by Melanie Kreis, Chief Financial Officer, Deutsche Post DHL Group. She spoke on "Financial reporting - caught between the poles of entrepreneurial behaviour and social change" and offered insights into the group's early adoption of IFRS 16, non-financial reporting and carbon accounting, accounting for goodwill and impairment of goodwill, as well as digitalisation. Nevertheless, she also picked up on the EU Fitness Check and noted that not only the family-owned businesses but also the large listed groups in Germany oppose potential carve-ins and carve-outs. Her clear message on all the topics she spoke about was "think things through to the end, think of the effects for the companies that finally have to live with the result".

The two ensuing panel discussions showed an interesting combination of panelists. A Member of Parliament, a CFO, an NGO representative, and an auditor discussed "Changing behaviour by requiring ESG information – Where is the boundary of the financial report?". While it was noted by some that a lot of reporting on ESG issues is boilerplate, it was also stated that there was an increased visibility and awareness of information, not only from the outside but also within companies. Whether reporting requirements could and should be used to change behaviour was contested with views ranging from the role financial markets can play to achieve sustainability to the warning against overtaxing reporting with an inflation of additional requirements. Measurability (and therefore auditability) and materiality were also controversely discussed with the difference of materiality to an entity and materiality to society especially noted.

In the concluding panel, the IASB Chairman, a CAO of a digital company, an ESMA representative, and a professor of accounting discussed "Digital reporting vs. Reporting in a digital world". The opening round of questions alone showed the many facets of the topic with some insights of what is already possible proving to be almost scary. Questions around XBRL dominated the discussion on what is currently being done, which saw comments on comparability in connection with block tagging, detailed tagging, and use of XBRL extensions, although it was mentioned that XBRL might not be more than an interim solution. It was also noted that as a result of increasing digitalisation information overload ceases to be so much of a problem and materiality questions might need to be asked differently. However, it was warned that while more and more information can be processed electronically and, therefore, quicker understanding patterns and drivers has not become easier. It was asked whether and when a point comes where we trust machine judgement more than management judgement and whether at some point of time, reporting and consumption of financial information would become a game of "Watson against Watson". One important aspect in the whole discussion was also the question of what is being reported as companies with digital business models have huge amounts of intangibles they cannot show in their financial statements. Accounting for intangibles was clearly identified as an area where current financial reporting needs to evolve.

An informal exchange of opinions between the many national and international guests, which included representatives of the standard-setters from the US, Canada, Australia, Japan, and Hong Kong, concluded the event.

A German language summary of the event is available on the ASCG website.

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