Cost and benefit: getting it right the first time

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

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

Related reading