Are Sportscasters Users of Financial Statements?

As you know from my previous articles, I have a passion for both accounting and sports. In "Accountants Love Acronyms," I shared that my favorite accounting acronym is PPA. So, I’m eagerly awaiting the first set of financial statements from Rogers following the close of their $4.7 billion acquisition of Bell’s share of MLSE. These statements will include the Purchase Price Allocation (PPA) from Rogers gaining control of the Leafs, Raptors, TFC, and Argos.

While it’s unlikely that the talking heads covering Toronto sports read accounting newsletters, if they happen to come across this one, I urge them to spend the next few months diving into the world of accounting. The upcoming financial statements, along with the Management’s Discussion and Analysis (MD&A) and related regulatory reports, are bound to contain valuable insights that could fuel their discussions. Given that sports talk shows often debate whether players are overpaid or underpaid, I’m particularly curious to see if any above-or below-market player contracts are recognized in the acquisition.

We all know that financial statements aren't for sportscasters, which brings me to the central theme of this article: who are the primary users of financial statements? As the Accounting Standards Board (AcSB) develops its response to the IASB’s Exposure Draft on Climate-related and Other Uncertainties in Financial Statements, I've been reflecting on this question.

This Exposure Draft is quite different. It doesn’t propose changes to the requirements of any specific standards. Instead, it introduces new illustrative examples to accompany existing standards. ?Some of these examples aim to illustrate the requirement in IAS 1/IFRS 18 that entities must consider whether to provide additional disclosures when compliance with specific requirements in the standards isn’t sufficient for users to understand the impact of transactions, other events, and conditions on the entity’s financial position and performance. Since this requirement focuses on enhancing user understanding, we must identify who the primary users are and their level of knowledge.

The Conceptual Framework defines the primary users of financial statements as existing and potential investors, lenders, and other creditors making decisions relating to providing resources to the entity.? It also notes that financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyze information diligently. It goes on to further state that at times, even well-informed and diligent users may need to seek the aid of an adviser to understand information about complex economic phenomena and that they need to consider pertinent information from other sources, including, general economic conditions and expectations, political events and political climate, and industry and company outlooks. This indicates that the primary users should possess a solid grasp of accounting standards and the economic landscape in which the entity operates.

I recognize that new information needs are emerging, particularly as sustainability reports begin to accompany financial statements. In my previous piece, "Connecting," I emphasized the importance of connectivity between financial statements and sustainability reports, given that sustainability-related risks and opportunities have financial implications. This connectivity not only serves traditional users but also attracts new audiences who may not share the same accounting expertise.

The requirements in IAS 1/IFRS 18, as I mentioned earlier, are crucial for providing relevant information to primary users. However, I often find fault with voluminous disclosures that merely restate the standards requirements. The notes to financial statements shouldn’t double as accounting tutorials. I believe we should assume that primary users have a reasonable understanding of accounting standards.

During our discussions about the proposed examples with interested and affected parties in Canada, a concern arose that these examples could lead to boilerplate disclosures repeating what primary users should already understand. This aligns with my perspective that financial statement notes are not an accounting tutorial. That said, I do believe illustrative examples are needed.? Illustrative Examples are an excellent standard-setting tool to clarify how standards are expected to be applied and, in this case, can address user requests for more information. However, we must ensure these examples do not result in boiler plate disclosures that fail to meet the needs of the primary users.

As always, I’d love to hear your thoughts on this topic and encourage you to read and respond to this Exposure Draft. Most importantly, if any sportscasters stumble upon this article and want to discuss accounting, I would love to chat!