Setting the Standard

Dr Keith Kendall, Chairman | AASB

By Tom Ravlic

Dr Keith Kendall has been the Chairman of the Australian Accounting Standards Board for almost 12 months and only now is it a job that is starting to look even remotely normal.

The coronavirus lockdown has meant that the chief of the body that sets accounting standards has spent more time removed from his team than engaging with it face to face.

Kendall came to standard setting following a career that included stints as a barrister, a specialist tax lawyer, an academic and a tax adviser at Deloitte. He began his new job after lockdowns began in Melbourne and this meant that the interpersonal contact was next to impossible.

Coronavirus protocols issued by the Victorian Government have begun loosening up and staff members at the standard setter are seeing more of their boss rather than having management by zoom call.

“Personally, I’m in the office two or three times a week depending on meetings and the like. Most of our staff are in a similar amount of time,” Kendall observes.

“It’s certainly good being able to get some face to face time with the staff and being able to make those personal connections.”

The board meetings kept going throughout 2020 with the use of technology and, according to Kendall, there was no slow-down in the overall technical agenda, but he acknowledges that the process may have suffered from the lack of interpersonal contact with board members and constituents that at times helps resolve issues more quickly.

Kendall flags to CFO Magazine that he intends for face to face consultations to return in the second half of the 2021 so constituents get to share perspectives with board members in person again.

One issue that has not been completely resolved by the International Accounting Standards Board is the debate over business combinations under common control. There are some business combinations that are not dealt with clearly in the accounting framework and Kendall says the AASB is contributing to the international process to some quirky gaps that the international standard setter had left.

What Kendall has also noticed, however, is that the discussion about business combinations, which is a standard that is typically referred to in the context of mergers and acquisitions, has highlighted how the issue of accounting for goodwill is like a zombie. It refuses to die.

International accounting standards had put in place an impairment regime for goodwill that required people to assess a carrying amount for goodwill for impairment when there were clear triggers for reassessing the goodwill carrying amount.

This can result in no write-down of the carrying amount for goodwill when times are cruisy, but a large hit to the bottom line is possible if certain products made by a company fall out of fashion, adverse economic circumstances gut a sector or an entity finds that a competitor takes a greater slice of market share.

An impairment approach acknowledges that goodwill may stick around for a while and should only be written down when there are genuine reasons to do so.

The amortisation approach, which is still favoured by some accountants, has the appeal of being easy to calculate because it usually involves expensing a predetermined portion of the carrying amount each year without the stress assessing triggers and trying to determine how much goodwill should hit the bottom line.

Kendall says that there were animated discussions at the AASB over accounting for goodwill that centred on this topic and a range of views were expressed including the fact that analysts might not worry about the amount that hits the bottom line as much as they do the fact something prompted an accounting consequence.

“The arguments in favour of both ways are going to be there forever,” Kendall says. “Just because we wind up favouring impairment, for example, does not mean that the arguments in favour of amortisation go away or become wrong overnight.”

It is not all about business combinations and goodwill, however, and the AASB under Kendall is grappling with a serious of not-for-profit and government reporting issues that need addressing.

Accounting for fair value in the not for profit arena remains a significant priority as does the development of a not-for-profit conceptual framework, work on a reporting framework for not for profits and service performance reporting.

“[Not for profit reporting] I have been advocating for us to get moving on since I started, and we are making progress along the way. Unfortunately, COVID did derail that to a greater extent than I had originally hoped,” Kendall observes. “With the way things were in Victoria last year that’s put us behind by at least six months.”

The IFRS Foundation is moving into top gear and is trying to accelerate developments in sustainability reporting with creation of a working panel of experts to achieve progress. Kendall says that the Australian standard setter is watching the sustainability reporting developments with interest.

A global consensus has emerged that a sustainability standards board will be established by the IFRS Foundation, but the Australian standard setter wants first dibs on dealing with the issues Down Under.

The current view of the AASB is that any standards developed for sustainability reporting should fall within the accounting standard setter’s remit, Kendall states, and be “subject to assurance levels as determined by the auditing board”.

“It is a default position. I’m certainly not saying our minds are closed on things, but we’re watching we keen interest what happens at the international level.”


Tom Ravlic

Tom Ravlic is an investigative journalist and author, specialising in financial services, corporate governance and legal matters.