Three managers have joined UniSuper and AustralianSuper in contributing to the International Accounting Standards Board’s (IASB’s) Investors in Financial Reporting program.
The newest members of the program are BNP Paribas Investment Partners, Odey Asset Management and Sumitomo Mitsui Trust Bank.
The IASB sets the International Financial Reporting Standards (IFRS), which are the required accounting standards for listed companies in nearly 120 countries. The Investors in Financial Reporting initiative was set up in 2014 to improve high quality, transparent financial reporting by seeking the views of investors and then giving due weight to those views in the standard-setting process.
Manager of equities at UniSuper, Lou Capparelli, said: “We are always conscious of our responsibility in the wider marketplace. We own assets both domestically and overseas and we are trying to reduce any discrepancies between jurisdictions because we own stock throughout different regions,” Capparelli added that harmonising the financial reporting process would have benefits for the super fund in the long term, for example, by having a deeper understanding of options or governance risks.
The new joiners bring the total number of investment organisations in the program to 18. The other members of the program are Aberdeen Asset Management, Allianz Global Investors, APG Asset Management, BlackRock, Caisse de dépôt et placement du Québec, Fidelity Worldwide Investment, Henderson Global Investors, Hermes Investment Management, Insight Investment, Lazard Asset Management, Nomura Asset Management, Ontario Teachers’ Pension Plan and PGGM Investments.
Lynn Wood, trustee of the IFRS Foundation, said UniSuper and AustralianSuper were connecting financial reporting with good corporate governance and “recognising more and more the role that the buy-side can play in influencing corporate governance.”
She also added there was space for more institutional investors to join should they be interested.
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Raising the bar on lease reporting
One of the latest reporting areas UniSuper has helped develop relates to leases, as previously more than 85 per cent of leases from companies using IFRS Standards or US GAAP did not appear on the balance, (an estimated US$2.8 trillion).
“Obviously, retail companies were heavily impacted by this – typically large tenants – and every single analyst and investor worth their salt would always be cognisant of their lease liabilities to the extent they are essentially an alternative form of debt, even if they weren’t formally on the balance sheet,” Capparelli said.
The new accounting standard, called IFRS 16 Leases, replaces accounting requirements introduced more than 30 years ago that are no longer considered fit for purpose. The standard was designed in close collaboration with the US Financial Accounting Standards Board (FASB).
“UniSuper’s contribution in relation to leases has been very helpful. It’s about putting all leases on the balance sheet and that adds to transparency,” said Wood.
“It’s been an issue that has been around for a long time. Up to now we’ve had to guess at many of the lease positons, but now with the new standard it is putting all the main leases on the balance sheet which helps decisions making considerably,” says Wood.
UniSuper hopes that the focus will be more towards the quality of disclosure than the quantity.
“At the end of this process, nobody wants to read 200 pages of notes of accounts in two point font where there is important stuff that remains unhighlighted,” Capparelli said.
“With these sort of things I am much keener to see rules that are principals-based, rather than more and more specific rules. If we can be principles-based that puts the onus on the company issuing the financials to operate in line with guiding principles.”