Accounting position papers: Reminders for finance teams

As financial reporting standards and the ways in which entities conduct business evolve, there is a growing importance of accounting position papers in supporting high-quality financial reporting and audits.

In recent years, regulators such as New Zealand’s FMA (see our February 2023 article) and Australia’s ASIC (see BDO Australia’s March 2025 article) have specifically and deliberately reinforced the critical role of accounting position papers in supporting high-quality and timely financial reporting and audits. These papers help audit committees, directors and preparers demonstrate sound governance, risk management, and compliance practices.

This article focuses on what makes a position paper effective, not just from a technical standpoint, but also in demonstrating good governance, risk, culture and compliance practices. We’ll highlight the key elements of a well-prepared accounting position paper, and some common mistakes finance teams should avoid.

In many instances, in comes down to a matter of “You don’t know, what you don’t know”.

By their nature, many of the transactions and events that will require accounting position papers are “complex” and therefore fall outside the day-to-day knowledge base of frontline finance teams, and therefore external experts and advisors may be needed.

As detailed below, BDO’s Financial Reporting Advisory team is available to assist entities with their accounting position papers and audit readiness assessments.

 

Why are accounting position papers important? 

From a compliance perspective, accounting position papers form part an entities legal requirement to keep and maintain complete, accurate, and thorough “accounting records” (as detailed in our February 2023 article).

From a practicable and business-as-usual perspective, accounting position papers are especially valuable when navigating complex or judgemental accounting issues, new standards, or evolving market conditions. Ultimately, they serve as a structured and coherent record of management’s assessment and application of relevant accounting standards, providing clarity, consistency and audit evidence – typically for rather complex and/or judgemental areas of accounting.

 

What does a good accounting position paper look like?

Like all forms of business communication, an accounting position paper should, at a minimum, be:

• Clear, concise, complete, thorough, and accurate, and
• Logically structured.

In order to clearly reflect management’s assumptions, analysis, judgements, estimates, decisions, conclusions, etc. regarding complex and/or judgemental accounting matters, accounting position papers are typically disaggregated into each of the following areas:
 

Section	Key focus
Purpose	Why the paper was prepared, intended audience, and decisions required.
Executive summary	Where possible, a one page (or less) summary of the key areas that the position paper addresses. While the accounting position paper in its entirety most be robust enough the satisfy the legal and auditor requirements, this is obviously meets the needs of are certain select group of stakeholders. Accordingly, the Executive Summary serves to meet the needs of other key stakeholders that don’t necessarily have a need (or desire) to fully comprehend the full end-to-end technical analysis of the particular issue (e.g., CEO, Boards, etc.). The key test of a solid Executive Summary is that if this were the only part of the accounting position paper that a stakeholder read, would the stakeholder still be able to adequately understand the substance of the “What”, “Why”, and “How” in order to inform their high-level understanding and subsequent decision making.
(i) Background facts and circumstances	A clear detailed description of the relevant background facts and circumstances, including (for example, but not limited to): Key documents and agreements. Key terms and clauses within those agreements. The relevant parties involved (and where relevant, their relationships to each other). If relevant, a clear order (i.e.., chronology) of events/transactions etc. Pictures and diagrams should always be used where this is more effective in describing key background facts (i.e., Group structures – particularly with respect to the group structures pre and post an acquisition/disposal/merger/ restructure etc.) – that is “A picture says a thousand words”.
(ii) Management’s identification of applicable standards	Management’s assessment of which financial reporting standards, pronouncements, and other supporting guidance are (and/or are not) applicable to the background facts and circumstances. Entities need to remember that the accounting position paper needs to be complete, in that it needs to address why certain which financial reporting standards, pronouncements, and other supporting guidance are not applicable – rather than just jumping to what is perceived to be applicable. For example, but not limited to: If a collection of assets has been acquired from an entity in a (legal) “Asset Purchase Agreement”, identifying that NZ IFRS 3 Business Combinations is relevant to be considered (i.e., to determine whether what has been acquired meets (or does not meet) the accounting definition of a “business”). If employees have received shares in any way, identifying that NZ IFRS 2 Share-based payments is relevant to be considered (i.e., to determine whether the transaction is, in substance, a share-base payment for accounting purposes – irrespective of its legal form (including if it is legally structured as a legal share purchase, especially if the purchase price has been funded via a loan from the entity). Where an entity acquires or changes its interest in another entity, that the full suite of standards dealing with interest in entities must be considered, in order, to correctly determine whether the interest represents a subsidiary, joint arrangement, associate, or passive investment (rather than just jumping to the standard that the resulting shareholding “looks like”) (NZ IFRS 10 Consolidated Financial Statements, NZ IFRS 11 Joint Arrangements, NZ IAS 28 Investments in Associates and Joint Ventures, NZ IFRS 9 Financial Instruments. For situations relating to the capitalisation of costs relating to Software-as-a-Service (SaaS) arrangements, identifying that the relevant guidance is found in two IFRIC Agenda Decisions (refer to our July 2021 article), rather than specifically NZ IAS 38 Intangible Assets. Note: financial reporting standards, pronouncements, and other supporting guidance includes: The financial reporting standards proper: NZ IFRS and NZ IAS standards (PBE IPSAS standards for PBEs). The financial reporting interpretations proper: NZ IFRIC and NZ SIC. The Basis fore Conclusions and Illustrative Examples the accompany the above. Final Agenda Decisions passed by the IASB Interpretations Committee.
(iii) Management’s assessment and analysis	Management’s assessment and analysis of: The background facts and circumstances per (i), against The requirements of the applicable accounting standards identified per (ii). That is, this section should not introduce any new background facts and circumstances, or accounting standards, that have not already been identified in sections (i) and (ii) above. Ultimately, this section should address the following account requirements and application areas: The initial accounting: Recognition criteria, timing (i.e., transaction date), and initial measurement. The subsequent accounting: Subsequent measurement, valuation (if applicable) and derecognition. Availability of any accounting policy options, practical expedients and rebuttal presumptions, and Management’s determinations as to the use or non-use of these. Areas of Management judgement, and Management’s determination with respect to these. Areas of Management estimation, and Management’s determination with respect to these. Any applicable transition requirements (e.g., if the accounting position paper relates to the first-time adoption of a new standard or amendment).
(iv) Financial reporting impacts	Management’s assessment of the financial reporting impacts of their conclusions, including (where relevant): Proposed journal entries. Anticipated impacts on management reporting. Quantitative financial statement impacts (profit or loss, balance sheet, statement of changes in equity and cash flow statement). Qualitative impacts on presentation format and/or note disclosures.

 

In what circumstances would you expect to see management prepare an accounting position paper?

There is a range of circumstances in which we would expect to see management prepare an accounting position paper, but typically these relate to new, unusual and/or complex transactions that:

• Are subject to long, protracted, and complicated financial reporting standards and associated publicly issued guidance, and/or
• Have different facts and circumstances transaction-to-transaction, and/or
• Occur infrequently and/or irregularly, and/or
• Have consequential accounting outcomes (initially, and/or subsequently).

In practice, examples of such “complex transactions” would likely include (but are not limited to):

• The transition to a new financial reporting framework (i.e., a “step-up” to NZ IFRS and/or PBE Standards).
• Employee Share Option Plans (ESOPs) and Employee Share Purchase Plans (ESPPs).
• Acquisitions, Mergers, Amalgamations, and/or Restructures (of entire entities, and/or the trade and net assets of an entity or entities).
• Loans with option to convert into equity instruments of the issuer (Convertible Loans, Notes etc.).
• Loans that have been modified and/or where roll-overs, waivers, or periods of grace with respect to covenants have been received.
• Determining whether an investment in an investee is a subsidiary, joint arrangement, associate, or a “passive” investment – and if a joint arrangement whether it is classified as a joint operation or joint venture.
• Software procured via Software-as-a-Service (SaaS) arrangements, and other cloud-based arrangements.
• Revenue recognition (particularly where there are multiple promised goods and services, where the transaction/sale price is not fixed, where multiple contractual arrangements exist, where contracts are modified).
• Lease accounting (particularly sale and leaseback arrangements, and lease modifications).
• Determining discontinued operations and/or assets held for sale.
• Power purchase agreements
• Transactions or arrangements facilitated by multiple separate contractual arrangements.
• Where restatement is required as a result of a prior period error.

 

What are some of the common mistakes management makes in preparing accounting position papers?

From our experiences, the most common mistakes that are made are:

• Failure to identify all relevant background facts and circumstances. This includes considering all documents the both specifically and inherently relate to the situation.
  • For example, where an Employee receives shares or share options, Management should also include the entity’s Constitution and/or Shareholders’ Agreement irrespective of whether these are referred to in the specific legal agreements with the Employee (as these two documents may be applicable and in certain circumstances may fundamentally change the overall substance of the arrangement).
• Failure to identify all potentially relevant financial reporting standards, pronouncements, and other supporting guidance.
• Failure to correctly identify which of the potentially relevant financial reporting standards, pronouncements, and other supporting guidance is relevant to the background facts and circumstances - and therefore conducting an irrelevant accounting assessment and analysis, resulting in a materially incorrect determination.
• Failure to correctly apply the relevant financial reporting standards, pronouncements, and other supporting, resulting in a materially incorrect determination.
• Applying (overly aggressive/optimistic) judgements and estimates such that the economic substance of the transaction/event is not reflected, resulting in a materially incorrect determination.

 

Key takeaways and how to ensure quality and robustness of your entity’s accounting position papers

While it is Management and, ultimately, those charged with governance (typically directors), who are responsible for the preparation and fair presentation of the entity’s financial report in accordance with the applicable financial reporting framework, these parties are often not (nor should the be expected to be) experts in complex areas of accounting and financial reporting.

As with other areas of financial complexity an entity may encounter (whether these be to do with taxation, valuation, etc.) Management may need to engage with external advisors and experts to demonstrate a good governance, risk, culture and compliance practices with respect to an entity’s internal accounting records, and external financial reporting.
 

Need help?

Please contact our Financial Reporting Advisory team for assistance in your entity’s accounting position papers and audit readiness assessments.

For more on the above, please contact your local BDO representative.

This article has been based on an article that originally appeared on BDO Australia, read the original article here.