Annual Review 2006 - PwC

AIFRS
The implementation of new International Financial Reporting
Standards to Australia – known as AIFRS – was the single
largest change in the accounting framework since the Italians
invented double entry in the 1400s.
PwC continued major programs in three key areas to ensure a
smooth transition: training staff; educating clients and the wider
business community about the new standards; and arguing that
Australia should follow the global IFRS model.
PwC took a strong stance on the dangers of Australia diverging
from the international model for IFRS and the decision of the
Australian Accounting Standards Board (AASB) to include detailed
Australian specifi c guidance in AIFRS. This activity included
extensive education and lobbying efforts over three years, led by
Jan McCahey, our Accounting Consulting Services Leader.
Jan presented to the AASB and the wider business community,
provided commentary to media and spoke at numerous events.
PwC therefore welcomed the AASB’s April 2006 announcement that
it would not add requirements or guidance to the Australian standards,
except to deal with a public sector or not-for-profi t issue. The Board
is also seeking to remove local guidance already provided.
Internal
Controls
Another important initiative was the worldwide release of the
IAS 39 – Achieving hedge accounting in practice guide. In AIFRS –
the complex issues and the way forward, the fi rm confronted the
primary concerns clients were still expressing a year after the
changes. These included:
Why are fi nancial reports longer under AIFRS?
Why aren’t current standards wholly principles-based?
What is happening with convergence relating to IFRS and
USGAAP?
Why is AIFRS so complex to apply in practice?
What will happen with proprietary company reporting?
With corporate governance high on the agenda of most
business people, PwC commissioned a report from the
Economist Intelligence Unit examining internal controls.
This included responses from 77 executives on internal control
efforts and their impact, and was featured in a cover story in CFO
magazine in June 2006. The key fi nding was that many companies
were suffering ‘governance fatigue’ yet remained concerned about
maintaining and improving an internal culture of control.
Of the respondents, 36 per cent said their organisations have spent
more than $1 million on internal controls in the past three years,
with 17 per cent spending more than $5 million. The report noted
these investments are not going to decline any time soon.
However, in the 20 face-to-face research interviews with senior
executives, it emerged that control regimes can only be as good as
the culture they are embedded within. Interviewees said it was
practically impossible to overcome someone determined to defraud
an organisation and that the best defence was a culture of effective
communication – a tone that must be set by the leadership team to
encourage and emphasise ethical practices.
In the CFO article, PwC outlined the importance of turning
culture into a tangible element of the risk management strategy.
Measurement must become outcome focused and include
palpable indicators of health, such as employee engagement
and absenteeism. Such indicators present a clear link to how
effectively risk is managed and can help prevent wider negative
impacts on the business.
Annual Review 2006 75