2020/21 Reporting Season: under-reporting or over-reporting – a tricky space to navigate
20 November 2020: Sophie Parkhouse, partner with responsibility for technical and training at Albert Goodman, talks ICAEW Insights through the tricky role for the medium-sized practitioner during the 2020-21 reporting season.
“A lot of it is around size,” says Parkhouse, “but it’s challenging for all entities at this time. It is not about saying ‘this reporting season is harder for some than for others.’ It all comes down to judgment.”
But there is an advantage as you go up the scale. “For larger entities, often the guidance is clearer, and it’s mandated. It’s clear you have to do this, or you have to disclose that,” Parkhouse says. “At the smaller end of the scale, we are left with that element of judgement: what is a true and fair view, and how do you arrive at that judgement. And then we’ve also got the encouraged disclosures – they are optional.”
Two sets of perspectives
Then comes the two sets of perspectives to negotiate. “There are those of the accountant in practice, trying to fulfil their ICAEW duties, not misrepresent information and ensure that the information is true and fair. If you’re signing off accounts, they must be correct and compliant,” she says. “From an accountant’s perspective, we say let’s be open, let’s be transparent, tell everyone everything, let’s share. From a technical perspective, that’s absolutely what we say.”
“Then you have the business owner’s perspective. They don’t want to put out any information other than the information they absolutely have to put out for fear that it will have a negative impact on them in some way.”
Perhaps it is fair to say there is plenty of regulatory focus on larger entities, as that is where the bigger values are. However, as Parkhouse points out, we have a huge number of small businesses in the UK that all have to try and exercise these judgments.
“This makes business owners quite nervous about doing anything that is just encouraged or do anything where there may be an element of judgment. They fear it will not have a positive impact on them,” says Parkhouse.
“And when you don’t fully know what the impacts will be – maybe on their credit rating or how one of their stakeholders may receive that going concern note you’ve put in the accounts – that then puts you in a tricky position as a trusted adviser. It is very hard to navigate that balance when there’s not necessarily a level playing field.”
Between the accountant in practice and the business owner/manager, there are often practitioners on the ground, working with clients and making sure they disclose the right things. They can be in an unenviable position at times, especially where livelihoods are at stake.
“The accountants in practice know what best practice looks like and where they want to get to. Some of the small entities do not have an accountant in business within their organisations – so you’re talking to people without financial knowledge – and that can be challenging. They are purely relying on you to advise them what’s best,” she says.
Of course, a “follow me” approach would help create some consensus to ensure under or over-reporting does not become an issue, but these are early days. “We all want to be consistent and not be the ones that are seen to under or over-report,” she says.
Need for consistency
To what extent has ICAEW been able to assist with the need for consistency? Parkhouse sits on ICAEW’s Practice Committee as well as the Financial Reporting Board. She says: “Having those trusted contacts for liaison is very beneficial. We also have a South-West Technical Advisory Committee, which is of real value to me as that is where the local technical experts get together and talk about the issues in our area, and how they are going to impact businesses in our region. Then we can share that practice for the benefit of all our clients. We are able to help one another.”
On top of all this is the challenge of remote working. “Going out to visit clients is how you learn most about their businesses. You can ask questions that you would not necessarily have thought of at your desk. It’s the accidental conversations that are not technical but allow clients to talk about their business passions and what is happening on a practical level that we miss,” says Parkhouse. “The Farms and Estates and Audit Teams are particularly keen to do this.”
A certain amount of remote working has always been a good thing in the accountancy profession. However, the removal of the hub from the working day – that is the office and everything that goes on there – is the missing link that has to be overcome.
Sector impact a balancing act
If it has been ‘business as usual’ for anyone it has, perhaps, been the farming community which works in remote locations and is largely ‘at home’. Parkhouse points out the difficulties of conveying to farming clients that practitioners could not visit when farmers themselves continued to work as usual. We are all having to learn to walk in each other’s shoes.
But what did not always work well on farms and in rural communities was connectivity – this has been especially difficult when so much business is now conducted online.
Also part of the rural scene is the leisure and tourism sector, which the pandemic has ravaged. What has Parkhouse seen in the South West? “It has all been a balancing act,” she says. “We have had to work out the position of the client, your own position, the position of all of your staff, and try to respect all of those positions.”
And let’s not forget that 2020/21 reporting will take place against a backdrop of expanded services around the government’s support schemes, all of which have had to be learned by practitioners like Parkhouse in record time. Knowing about change is all part of being an accountant, Parkhouse points out. “A fast pace is what the profession is all about,” she says. “We have to be adaptable. The role of CPD is increasingly important.”
Of course, when we look back at this time and revisit how corporate reporting was tackled in a time of crisis, there are bound to be areas that were reported on, however balanced, that might jar with hindsight. As Parkhouse points out, it is the learning from this that we will take away.
Financial statements have a forward element too and that is particularly important – from a narrative perspective – at this time.
Sophie Parkhouse is a partner, with responsibility for technical and training, at Albert Goodman. She is also the immediate past President of the ICAEW South West Region and Chair of their technical advisory committee.