What’s so exciting about accounting standards?

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Right now CAFOD is following the work of the International Accounting Standards Board with considerable interest. But why does the IASB interest a development charity?

The fact is that oil, gas and mining industries have a huge impact in many of the developing countries where our local partner organisations work.  Often it is very difficult for citizens (and government officials) to get information about the operations of the companies that are exploiting their country’s non-renewable natural resources.  However we know many of the world’s poorest countries have not seen lasting benefits from exploitation of their oil, gas and mineral reserves.  The reasons for this include poor governance, corruption and conflict.

Therefore a lot is at stake with the development of a new extractives standard which would influence the kinds of information that some of the most powerful transnational corporations on earth have to share in their financial statements. 

In the last few days, investors, oil, gas and mining companies, development NGOs and accountancy firms have all fed their ideas into the consultation on whether the IASB needs to develop a new international financial reporting standard for the oil, gas and mining industries, and if so, what should be in it?

The working group who prepared this discussion paper is most interested in the views of investors as users of financial data, e.g. what information is needed for providers of capital when making investment decisions about oil, gas and mining companies?

From our perspective, it seems clear that investors making decisions will benefit from being able to access robust, comparable information about a company’s operations on a country-by-country basis. Given the known risks of corruption and conflict in this sector, and potential reputational risks for companies, this level of data makes sense.

The value of investments can depend a great deal on national laws, concession and tax regimes and the political context. Extractive projects are often large scale and linked to a particular geographical location for many years. Here CAFOD shares the view of the Publish What You Pay coalition that the new standard should require companies to break down their benefit streams to governments, (e.g. taxes, royalties, bonuses, concession fees), reserves, production volumes and revenues, costs and key subsidiaries and properties for each country where they operate.

But for us this is not the only question.  The discussion has highlighted a broader question: who are International Accounting Standards developed for?  For many people the temptation might be to answer who cares? It’s easy to write this issue off as technical, dry and not really relevant to those of us who are not accountants.

In fact, as the financial crisis has shown, the accounting practices of global companies can have a very real impact on our day-to-day lives. Therefore it is essential that the public can have confidence that the processes and systems which shape global financial requirements for companies are genuinely “in the public interest”. When considering those with a particular interest in financial data, of course finance analysts, investors, accountants and companies will be top of the list but government officials and citizens should not be missed off that list either. There is quite a way to go to achieve that single, transparent, legitimate international system which is truly in our interest. I predict that in the future many more of us will be getting excited about accounting standards!

Read CAFOD’S submission to the International Accounting Standards Board on the need for an Extractives Standard HERE

Anne Lindsay is CAFOD’s private sector policy analyst

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