CHAPTER ONE

Introduction

TRADITIONAL ACCOUNTING AND FINANCE FUNCTIONS have changed greatly through the introduction, acceptance, installation and use of computerised systems. The same can be said of IFRS and XBRL, although relatively in a much shorter time frame. While the future of both pillars, IFRS and XBRL, were considered earlier, and the issue of object management was broached, consider the prospect and productive potential of combining objects and value to create a new, integrated financial, business and entity reporting model. This proposal is best put into perspective by reviewing where the notion sits in the context of earlier parts of this book.

Part I relates to historically grown standards that refer to objects and valuation, essentially mixing these up. This can mean that accounting for value occurs without any reference to the underlying objects. Issues, such as double counting, can arise in such circumstances. In Part II, with regard to disclosures, the objects are all the same, with tax and financial reporting being the same, too. But valuations differ. As a consequence, there is the strong probability of a different flow of information arising from comparable reporting entities. This is also likely to occur in relation to non-financial reporting where there is a lack of consistency between related non-financial standards, as well as due to differing views taken by various reporting entities as to what non-financial reporting means. In Part III, XBRL is identified as a tagging device that lends itself well to tagging objects. Essentially, it can be seen as having been manipulated to track values only. Even so, it is an extremely useful tool to organise this information, and developments are expected in relation non-financial standards.

All of the preceding sections lead to Part IV, in which objects and values are kept separate. The objective in this part of the book, therefore, is to manage objects accurately by tracking them and managing any related conversion (such as of units of measure, or currency) to ensure comparability, as well as accurate valuation. If objects and value are kept apart, as suggested, it is feasible that a new form of business reporting can be created that increases existing maximum levels of reliability and integrity. For instance, the tracking of all objects can be improved by way of computer-readable sensor devices rather than tags. By organising business information in this manner, it becomes comparable throughout the supply chain process and also in relation to the associated valuation.

Essentially, this proposed paradigm shift in business reporting discipline entails the fundamental, systematic and disciplined tracking of objects. In effect, it means a move away from the commonly understood accounting principles through the elimination of double entry bookkeeping. The new archetype involves mixed attributes and mirror accounting. In this regard, mirror accounting means that one object cannot be accounted for as an asset by two separate entities. Only one party can own an object, such as an asset. Basically, full objects cannot be in the accounts of two parties. In the case of capital items, corporate auditors send out letters of confirmation to check for the existence of those physical objects. But for financial instruments, and if two related parties use alternative approaches in accounting, without adequate transparency, there is a strong possibility of duplication of the related details. Thereby, mirror accounting is not happening properly. In effect, there must be greater clarity on asset ownership so that there is no possible doubling up.

With regard to valuation, when there is clarity over the appropriate values to use, whether historic or market, the same object can be presented in many currencies without the need for additional effort. This proposed approach can be thought of as another tool to use in relation to business reporting. It has the tangible prospect of reducing, quite dramatically, the amount of data and informative elements that are generated for business reporting purposes at present. That will have positive intra-entity and wider economic implications.

Changes in technology

Consider the rapid rate of technological change, and not just in terms of software applications or hardware associated with business reporting. For instance, there is the prevalence of Global Positioning System (GPS), especially in fleet management, plus picture recognition, as well as assorted sensors. Then there is increasing globalisation and the ever-influential Internet.

Essentially, so-called time tracking can become more widespread than is the case at present. In doing so, it is possible to determine the location of an object that can be confirmed to be in only one place at a particular point in time. In turn, this can be linked directly to real-time reporting. This is more than tracking parcel deliveries with UPS (United Parcel Service) or Swift: it can expand into supply chains related to products, people and financial items.

Changes in thinking

In the process of digressing from common norms in organisational management and business reporting, there is a need for more clarity over definitions, such as for capital, fixed assets (whether movable or non-movable) and people. This can be seen to become something of a financial-communication matrix that makes any idealised integrated reporting feasible and necessary.

Object definitions

Consider the following as needing further investigation:

• entities, boundaries and business models;
• recognition and derecognition in IFRS;
• reporting entities defining their objects;
• are contracts objects? Consider the definition in IFRS 5;
• object definitions in IFRS.

Chasing value

Businesses are already creating models that are coming to a common currency. For instance:

• markets, such as eBay, Amazon, stock exchanges;
• currencies and financial instruments;
• fair value in IFRS, IVSC and other models;
• netting under IFRS (such as the Deutsche Bank example);
• new IFRS standards.

A new reporting model

Creating a new reporting model requires the valuing and disclosing of net assets, as well as consideration of recognition and de-recognition. Then there are products that have a short-term life-cycle (and are likely to be movable) and those with a long-term life-cycle, such as facilities that are likely to be stationary and also non-movable.

This has financial implications, especially with regard to recognition and derecognition, as well as any cash flow statement and forecast. Following on from this are the related issues of entity value, stakeholder engagement and relations management, as well as corporate communication, leading to a new model for the development and distribution of business reporting. In that regard, reports would need to disclose attributes of net assets, as well as strategies for the entity and for the underlying business model.

Certainly, none of this can be dismissed as unreasonable and there is enough to contemplate, quietly or otherwise, the future of business reporting and how it can be improved.