• When accounting complexity hits, what do you do?
Article:

When accounting complexity hits, what do you do?

04 September 2018

You don’t have to be a large multi-national corporation to face a complexities in your day-to-day accounting treatments.

In fact, our experience is that small and medium sized entities (SMEs) are just as likely (and in some case, more likely) to enter into transactions and arrangements that give rise to accounting complexities.

Accounting complexities are an unfortunate fact of life, and their accounting outcome should not ultimately “drive” the business or economic decision behind entering into the transaction or arrangement itself.

The key is (a) to identify that there is an accounting complexity to begin with, and then (b) determine and appropriate course of action to understand and resolve it.


What do accounting complexities look like?

Accounting complexities do not come in a predefined box, however there will be certain transactions or arrangements than by their very nature will almost always give rise to accounting complexities.

Generally speaking, accounting complexities arise in various ways

  • Significant estimates and/or valuations are required
  • Significant judgement or the assessment of various alternate options is required
  • It is not clear which accounting standard(s) apply.

Where a transaction or arrangement exhibits one or more of the above, the “warning siren” should be going off.


What are the common examples of accounting complexities typically encountered in practice?

There is no fully complete and comprehensive short-list that includes all possible examples, but with that being said, some key examples we have been asked to advise upon recently include:

  • Mergers and acquisitions
  • Group restructures
  • Share-based payments (in particular employee share options)
  • Loans with clauses that include the ability to convert into shares (“convertible notes”)
  • Impairment testing (goodwill and wider cash generating units)
  • Treatment of joint arrangements
  • Cost allocation for property developments
  • New accounting standards relating to revenue (NZ IFRS 15), leases (NZ IFRS 16), and financial instruments (NZ IFRS 9).
  • Stepping up from special purpose financial reporting into NZ IFRS.


Where can BDO step in and assist

Providing specialist accounting advice on areas of accounting complexity is what BDO is known for.

We have the people and the client base that continually provide new and interesting accounting challenges that trend in the industry.

Chances are if you’re struggling with something, we’ve seen it and know how to handle it.

Also, for those organisations with an external audit requirement, their auditor may (depending on the nature of the transaction or arrangement) insist that an independent technical opinion has obtained by the organisation.

BDO has a string industry reputation in this space, where we regularly provides such opinions and reports not only to SMEs, but also large organisations audited by the “Big Four”.


Further details of the specialist opinion services we provide can be found here.

We look forward to hearing from you to discuss how we might assist your organisation with any accounting complexities you may be facing currently or in the future.