I think we can agree that accounting standards the world over are difficult to read and understand, whichever accounting body writes them. There is often too much detail when we don’t need it, not enough when we want more. The language used is complex, combining the dense with the vague, and it goes on and on forever, especially when one is trying to see if a standard applies to a particular accounting transaction. This is inevitable, accounting bodies say; accounting transactions are so complex, the rules to account for them have to be too.
What I didn’t know was that so much accounting research has been published on how difficult they are. Accounting professors have studied the difference between understandability and readability, disclosure overload, over-complexity, the outrageously complex, the struggle to simplify and many others. The accounting boards are also aware of the problem. For instance, the IAASB staff recently published a document (June 2024) called Drafting Principles and Guidelines for themselves. In this they invented their CUSP: Complexity, Understandability, Scalability and Proportionality. Unfortunately their ‘drafting principles and guidelines are non-authoritative’. But I was encouraged to read that ‘sentences are best written in the order of subject – verb – object.’ (Please note my sarcasm – the complexity of CUSP against childish advice on sentence structure.)
I have decided to share one of these accounting research papers: Are accounting standards understandable? by Bryan Howieson, Janice Loftus and Sabine Schührer. They reviewed the readability of all 65 Australian accounting standards using the Flesch Reading Ease scores and discovered that all of them were either difficult (37%) or very difficult (63%) to read. One of the standards, AASB 1048, Interpretation of Standards, June 2012 had the incredible score of 3 out of 100, where 0 is the most difficult to read. So naturally I read it.
I could easily write a whole article just on this standard, all 17 pages, but if I quote too much of it, I will get into trouble with the Copyright Act 1968 where ‘no part may be reproduced by any process without prior written permission’. So I will quote – without their permission – only three words of their definition of ‘ambulatory’. They tell us that ambulatory means ‘automatically moving forward’ in the standard, but only when referring to a second Standard from a first Standard, and only to the latest version of the said second Standard. It does not mean capable of moving from place to place as we have always believed, but moving from standard to standard. Australian standards makers, probably accountants, have invented a new meaning for ambulatory, but that was ten years ago and luckily it has not caught on. As you can see with this example, it is a wonderful read for anyone looking for the unreadable. But I digress.
Twenty-five accounting standards experts were interviewed for this research paper. What the researchers discovered was that the standards which were the most difficult to read were not the most difficult to understand. For example, one of the most difficult standards to understand was among the easiest to read: AASB 139, Financial Instruments: Recognition and Measurement.
This paper, though, makes unusual recommendations for writing accounting standards. They say standards should be illustrated with flowcharts and visual representations or the standards-setting process should be reformed to target smaller entities and to prepare more user-friendly summaries to help non-experts. Unfortunately the Australian Government is not listening in a display of cordial indifference, and the IASB or FASB have not read the recommendations in polite ignorance.