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Armand Capisciolto: Hello, everyone. Welcome to our panel on the future of financial reporting. For those of you who weren’t at our first panel, my name is Armand Capisciolto. I’m the Chair of the Accounting Standards Board. And those of you who joined both or just joined this one, this is a really interesting panel. I think this is going to be a really interesting discussion, much different than the first one on IFRS 18, which was about an issue that people have to deal with today.
This one’s about where financial reporting is going. This one’s about the future. And when I think about the future and I think about the world we live in right now, we live in a world of significant change, whether it’s technological, geopolitical, and there’s tons of uncertainty, and some of those risks are actually leading to more fragmentation of the economy and deglobalization.
And some would say, “Well, does that change your view on global financial reporting?”
And for me, it doesn’t. Because even though our economies might be becoming more fragmented, the investor is still global. And if the investor is global, we need a commoner financial reporting language. And that’s what this panel is going to talk about: How the future of financial reporting evolves such that we still have relevant information going to investors to make appropriate investment decisions.
So with that, I’m going to turn it over to Katharine Christopoulos, the Director of the Accounting Standards Board, to introduce and lead this panel discussion.
Katharine Christopoulos: Thanks, Armand. And for those who did not listen to the first session, you should at least go back to listen to Armand’s introduction. It was good. So we’ll leave it at that. But today we have a great group for panelists here. And again, we’re talking about the future of corporate reporting, so we wanted to bring different lenses to the table.
So beside me is Rika Suzuki, IASB Board Member. And then to her right is Erin Greenfield, who’s the President and Portfolio Manager of Greenfield Investment Management—so, a user perspective. And then we have Andre Besson, who’s the Head of Group Financial Reporting Guidelines at Nestlé and also happens to be a current IFRIC member. And then, of course, last but certainly not least, Anita Cyr at the end, and she is the Chief Accountant of the BC Securities Commission. So we have all perspectives at the table.
So when we’re talking about the future of corporate reporting, we’re talking about not just what’s changing but how those changes impact the various different stakeholders you see here.
And me and Armand have been traveling around a little bit with some of the other national standards setters and international meetings. And this has been a huge topic of conversation that people are very interested in. Our times are changing at such a quick and fast pace that it’s … it’s interesting to try to take a stop and take a step back and say, “Okay, what does this mean? What does this mean for everyone involved?”
So with that, I’m going to start with you, Rika. And when we say financial statements, when we talk about corporate reporting, that’s just one piece of the broader information that is used by investors to make decisions. So from your perspective, what do you see as some of the key factors driving standard setting in the near future?
Rika Suzuki: Katharine, thank you very much for a great question.
So, I think that it’s one piece, [chuckles] but I believe that it is central to the corporate reporting ecosystem. So the role of financial statement is to provide a shared reference point for investors. That means that enhance the information around the company’s performance. Because of that, that enhance understanding of the companies over time. And that also enhance the compatibility of information across companies, so that enables investors to assess companies’ performance and also prospect. So that is the one aspect.
Probably another aspect is about consistency and also coherence across corporate report. Because I think, as you mentioned, financial statements are just one piece. [chuckles] So it’s really important to think about how the information within the financial statement are connected to other information provided through other corporate report. So because we need to respond to users’ needs, various users’ needs as well as we need to fill the gap of information in order to do that, it’s almost impossible for financial statement to provide every single information users need. So we must ensure the connected information with financial statement and other corporate report.
Another thing we have to think about right now is digital consumption of the information. It’s really different type of the consumption we need to consider, but it’s very important other standards to harbour more structured information and then ensure the linkage of the information within the financial statement and between the information in the financial statement and outside.
So the aim is not just to put every single information within financial statement. It’s not our law. We just need to ensure the right information sits in the right place. And the right information should be connected to other information outside the financial statement. So that’s key features that I’ve come up with
Katharine Christopoulos: Perfect. Thank you, Rika. I think the one thing I took from that as well, a very important part, is that the financial statements really are that anchor, right? And to reference to things outside the financial statements as well. So, Erin, I’ll turn to you. And really from a user perspective, are there any trends you’re observing in terms of the types and the amount of information that you are using to make investment decisions, and has that evolved?
Erin Greenfield: Okay, so I think one of the biggest trends over time has been just increased reliance, not necessarily by me, but I think investors in general, on electronic databases. So, more and more investors get their financial data from Bloomberg, Refinitiv, FactSet, Morningstar, et cetera, et cetera, S&P. And I think that trend is just continuing. It’s been going on for a long time, but more and more investors are getting their information that way. And if you just look at the amount of dollars in the market—quant investors, index investors—there’s a large amount of the money in the market that’s getting their information that way. They’re not reading financial statements. And then there’s other, there’s quant shops, there’s hedge funds that are getting their data from databases that are based on those databases. And they’re not reading financial statements. So I think that’s the biggest trend.
That’s actually not how I invest. I’m a fundamental investor. I still read financial statements like old school, but it’s becoming more of a dying breed. [chuckles]
Katharine Christopoulos: It’s a little scary when you say. [chuckling] It’s like three steps removed now when we’re talking about what they’re using to get some of that data and placing any sort of reliance on potentially some of that information.
For Andre, I’ll turn to you for a moment. And again, we’re talking about information requests, and has anything changed over time from a preparer perspective, and has there been any challenges really providing that information to some of your users?
Andre Besson: So, I think a couple years ago, the easy answer would have been sustainability. And what I would say now is the accent or the focus of that has been maybe from sustainability in terms of impact, the sustainability in terms of business model and resilience. And I think that’s been where some of the focus of investors in those changing times that you and Armand talked about have really been to—yes, back to that. And in those changing times, I think we have to have that flexibility to report on the core, that backbone of information. It’s another buzzword that was popular, it’s core and more.
Then think of how does that more change over time while maintaining the integrity and focus on the core reporting, whether it’s financial reporting or non-financial reporting kind of extended, regulated, or voluntary reporting.
So, one of the challenges I think we see, it’s how to avoid baking in and kind of having inertia of reporting what was relevant a couple cycles ago, and make sure that we’re bringing the right information as that part of that extended reporting ecosystem, so that we have to adapt while at the same time focusing on delivering the core requirements, the backbone.
And then one of the other things that we are being asked about, and I think it’s across all different types of preparer organizations is impact of AI. And I think it’s moving from being how is AI going to impact you in a narrow sense as a company to now how is AI going or other technological change going to impact your industry, your customers, or the broader ecosystem. So it’s kind of going from a narrow AI focus to a broader AI impact.
That’s some of the things that we’re seeing and hearing.
Katharine Christopoulos: Thanks, Andre. And for those who were part of the or listened into the first panel, one of the things that Brian from the Alberta Securities Commission was talking about was this request for more information and more information, and not that preparers are trying to obscure the information, but when there’s so much information out there, what’s important, and what are users picking up? And we will get more into AI in a moment, but first I’ll turn to you, Anita.
When you’re hearing about all the different kind of information needs from users, how do the regulators keep pace with some of these changes?
Anita Cyr: Thanks, Katherine. And maybe just before I get into that, I do want to level set a little bit. So, I’m from—when we talk about users, of course, there’s global institutional investors—but I’m from BC. We are home to more public companies than all of the other provinces combined, but they tend to be small.
To illustrate that: We’re home to 54% of the public companies in Canada, but that only represents 12% of market cap. So you could say that BC is a microcosm of Canada in that sense on a global scale. I mean, of course, we have large multinational companies. But we do also have these retail investors whose focus is on these smaller companies. We call them venture issuers. They’re a growth tier of companies for which we’ve historically allowed optional accommodations under securities law, just recognizing that their needs and priorities, so the balance between cost and benefit for these users differ. That’s never extended to financial reporting needs, but as transactions increase in complexity, as standards increase in complexity, as we continue to hear feedback on the state of the capital markets and the cost of compliance, that’s something we’re trying to work through. Maybe there’s appetite for different financial information for these types of users. Examples of this already are in the extended filing deadlines, some relating to corporate governance relating to internal controls and audit committee composition. We’ve recently introduced optional semi-annual reporting, so there’s already a case for kind of this differential investor need for these types of issuers.
In terms of trends of information that we’re seeing, obviously mentioned already the speed and breadth of information, I think we really want: Do investors have the ability, have the transparency to understand the source of that information? A lot of our financial reporting or a lot of our disclosure requirements were put in place or developed at the turn of the century, if you could imagine. So do we have the right investor protections in place to ensure that the information provided is credible and reliable?
In terms of how we’re responding, we are trying to be innovative. We—for example, semi-annual reporting—we used a blanket order. It was an innovative approach to try to get change to the market more quickly as we continued our work on rulemaking.
Other examples are on the capital-raising side: We’ve expanded our listed issuer financing exemption. Our exemptions for WCSIC’s well-known seasoned issuers is another example. We also have CSA Collaboratory, which is a regular— is a cohort-based regulatory testing framework to allow market participants to test out different financial concepts and models in a regulatory, flexible environment with CSA staff guidance. So, it’s a way that we’re trying to assess or be cognizant and aware and keep on track of changing needs in our marketplace.
Maybe I’ll close by saying that changes are always happening. We are the securities commissions; we have a broad mandate and extensive rulemaking power from our governments relating to regulating the capital markets. And in exchange, our governments expect us to be disciplined when we enact changes that could affect in exercising that power. So, we’re data-driven. So, when there are changing investor needs, we need to be able to ensure that we have the data to support any regulatory intervention that has to happen. So really, when we consider changing needs, that’s in the broader context within a broader regulatory mandate as well.
Katharine Christopoulos: Thanks, Anita.
We’ll get a little bit deeper into— there was some touch on AI and really all these developments in technology. But at the same time, I think there’s some pressures for some of that comparability consistency across the board. And I’ll even pick up a little bit from Erin when you were talking about a lot of the information is coming to users from data aggregators. Consistency is still important if they’re pulling things from that, and that’s actually potentially more important, because you want them to be picking up very similar things.
So I turn to you, Rika. And we talk about this modernization we’re going to in terms of keeping up with these developments, but then we’re also talking about having relevant, reliable, comparable information. When you’re thinking as a standard-setter, how do you approach balancing those two courses that are probably at opposite ends?
Rika Suzuki: Thank you. I think that’s challenges we are currently facing almost every day [laughs]. But at the same time, over twenty years, IFRS Accounting Standards have been a common language. So even through the significant challenges the world faced, like a financial crisis, the COVID-19, we did a quick turnaround to see what the best we can contribute to the stability and efficient financial markets.
So I think trusting the information— the financial statement has been underpinned by trust in IFRS Accounting Standards. So I think— I mean, the IFRS Foundation and IASB are currently celebrating twenty-fifth anniversary. So that means our stakeholders have already established their application practices based on our standards. So even though we have to keep up with changes and evolutions of many things, but at the same time, we have to continue providing the stable platform in corporate reporting ecosystem. So we need to find, strike the best balance between providing such stability and also responding to the evolutions and changes in the world.
So it’s kind of the tough role [chuckles] and kind of a very ambitious objective we have at this moment, but we have a kind of core principles we always follow. The first is evidence-based. So, evidence comes first. We check, and we confirm whether we have the demonstrated evidence we need to take action. If we found there is evidence exists, and then the next thing is we do extensive consultation with all our stakeholders globally to ensure the need really exists based on that evidence. And lastly, we always care about the proportionality. So constantly and carefully, we check the cost and benefit. So whether the benefit of new changes outweigh cost of implementing such changes. So to those points, we always follow to ensure what we are doing is right for our stakeholders.
Katharine Christopoulos: Thanks, Rika. And again, I think that comes back almost to your first point about, again, the anchor and not changing. And also it’s listening to the market but knowing when to actually step in versus you can be constantly responding to changes and then you’ll get no work done. And you do have a tough job, by the way, [chuckles] when you say a very tough job to try to balance the needs internationally.
So, Andre, I’ll turn it to you. And really along the same theme about balancing that change with consistency, do you feel any tension in practice today? And what parts of financial reporting do you find the hardest to adapt to as the expectations might involve, and where do you welcome so much flexibility?
Andre Besson: I’d really just say that high-quality standards facilitate the communication between companies and investors. And we really see that as the purpose of standard setting is to have that communication framework to regulate and facilitate that communication. At the same time, companies want stability. And we might be willing to have a less conceptually pure standard but something that’s pragmatic. And I think that the Board has shown real ability to strike that balance. I think after obligatory statement as a preparer, not every time, but that there is the attempt and the consultation process, the outreach process facilitates that to make sure that we can balance the needs of investors with preparers and auditors in terms of what we can deliver in terms of financial reporting.
So, as I said, stability is, to some degree, important for us to make sure that the balance between progress and improvement—but not too often, please [laughs], I would say. And I think that’s really one of the elements.
The things that I talked about in terms of the inertia that we can develop is processes get baked into systems, and as systems get updated and changed, it’s also difficult if we have to change accounting methods and standards at the same time. So that’s where the frequency of those changes can be a specific challenge.
The other thing that I would say is a challenge, it’s outside the financial reporting framework—other demands on the organization in terms of non-financial reporting, which has become mandatory for some preparers, many preparers, as well as kind of the extended reporting framework, like things like BEPS Pillar 2. So all of those create demand on the resources of the company, and it’s often the same people that are involved in those different aspects of reporting. I think that’s one of the— we can become a bottleneck as those kind of all come together. So accounting standards are a big part of it, but that extended reporting environment and be competing for that limited set of resources.
Katharine Christopoulos: That’s a really good point, Andre, because yes, it’s Rika and her Board can take on a project tomorrow, but would you be able to actually have the time to respond to it, provide that feedback on it, as well as implement something once it is. So I think it’s that balance as well.
And so, Anita, very similar question, but when you look at that kind of balancing as a regulator, are there certain things that you’re concerned about, or that you would approach with caution when it comes to how AI or how all these developments are coming out and also that need for consistency, which I know for a regulator perspective is very helpful. So how would you approach that?
Anita Cyr: I think with how standard setting is going, I do take comfort. Maybe I’ll start with the— I’ll start by— I think, the principles-based standard is what we need definitely in our market. We need the flexibility for different— I just illustrated we have various size issuers, different industries. They need the flexibility to be able to tell their story, and I think the principles-based standard is still the right way to do it. And to Rika’s point, I think connectivity of information, it really plays into that as well. We have in Canada the requirements for mandatory management commentary in the MD&A. This is a— We refer directly to the financial statements in this, where we say it’s a narrative explanation of how your company did and helps explain to investors what your financial statements show and don’t show. So, that connectivity piece, that flexibility, I think, is very important.
What does give me concern, and for those that were on the session earlier, it plays off of that as well, but I think the auditability as we get more management judgments, management approach in the financial statements, and what does that mean for the expectations gap and what users— and again, I recognize there are obviously very sophisticated global investors that understand what management disclosures mean in the financials—but we also have those that don’t. So I think that’s an area that gives me pause if in terms of or concern in terms of if there’s too much management approach or too many— too much of a principles base.
And again, also touched upon as well, the disclosure overload that could result from that and whether truly material information might be obscured. I know we talk about AI and how the number of pages might not matter, but everything else we’re hearing, you still need a human in the loop to assess the output. So I’m not sure that technology will solve disclosure overload.
Katharine Christopoulos: That’s a really good point, Anita. Turning to you, Erin. So, given some of the user perspective right now, you’re hearing a lot about that balancing act of standards and what the real-world challenges preparers are facing. And where do changes in financial reporting help actually really improve your ability to make judgments, and where do they add some complexity or judgment make things harder for you?
Erin Greenfield: I think, well, first of all, I think having consistency across the different types of gaps is certainly helpful. I think we were really going down that road until maybe ten years ago. And then it sort of— It came off the tracks with leases, I guess—was the first big one. So I think it’s a real frustration, I think, for many investors that you’ve got— You’ve sort of gone backwards on consistency across the different gaps—US GAAP versus IFRS. So, that’s a very material difference now in financial statements is leases, but not just that. You’ve now got— The statement of cash flows looks quite different between a US GAAP company and some IFRS companies. And now with IFRS 18, you’re going to have a different income statement.
And I talked in my last answer about how more and more investors get their information from these databases, and they’re going to classify the information the way they want to. So regardless of what IFRS says in IFRS 18 or any other standard, S&P Capital IQ is going to put the numbers in the way they want them. So even though IFRS is changing the way the income statement looks on the actual annual report, it might not look that way to investors because they’re going to make sure it’s the same for US companies and European and Canadian companies so there’s consistency in the database.
So, I think it would be a lot better if there was continued cooperation between FASB and IFRS. I know it’s difficult with the egos involved. But, personally, I think to the extent there’s divergence, they should force themselves to regularly revisit these things over time to try and come to an agreement as to how we can get back to convergence.
Katharine Christopoulos: Thanks for that, Erin. And when you talk about, again, the aggregators picking up what they want to pick up, you might be comparing completely different things. When you’re talking about picking up the different numbers, and they might have a very— it might mean something very different, and yet they’re saying they’re equal when they’re comparing it. And I’m not sure if that’s the method that the users are using to get some of that information. Not sure they’ll know that that is incorrect, potentially. And it picks up a little bit with Anita, what you were talking about, where you’re focused more about kind of that management approach. And it’s great! I think management wants to tell their story, but it’s hard to. And I think this is—the IASB deals with this a lot—is balancing that with the consistency, because you’re at odds there, because the management’s going to tell their story potentially different regardless if you’re in the same industry or across industries, so you’re dealing with that.
So, I’m going to stay with you, Erin, again, and one of the questions I know our Board has been dealing with, and we’re doing some work on is: How do users consume information? And so, has technology changed—I know you talked about your old school look at financial statements, but, in general—how has technology changed how you consume information, if at all?
Erin Greenfield: Yes, I think, well, first of all, it’s been getting faster and faster. So the amount of time it takes for the information to get to users has been getting faster, but that’s been going on for a long time. But now I think the big difference the last couple of years is AI— Again, I’m not a huge user of AI, but I know for a fact that many, many investors are digesting their information through AI. So they’re not reading the press release; they’re getting a summary. They’re not reading the financials; they’re getting a summary. They’re not listening to the conference call; they’re getting a summary from AI.
I go into meetings with management teams, and three of the other investors at the meeting have their print-offs from AI and what are the top ten questions to ask management from Perplexity, right? So, this is how people are digesting information now.
And it’s just a fact. So, I think preparers need to know what their information is going to look like once it’s put through the screen of AI. So that’s, I’d say, the biggest change that’s happening right now.
Katharine Christopoulos: And still on you for a second, Erin. So have you seen— In the past, we always, at least I always heard AI is going to change that time, so we’re not going to get quarterly reporting. We’re going to get more on-demand reporting so we can see more information on a more regular basis. Have you seen that in terms of more regular information? Do you see that as a need from users to get more of that on-demand type of information?
Erin Greenfield: I think it— So I think the frequency of reporting is really up to regulators and also politicians. As you can see in the US right now with Donald Trump, he looks like he’s going down the road of making quarterly reporting optional.
So it’s a political decision whether investors want it or not. We have limited impact. And I think you already talked about how semi-annual reporting’s allowed in BC for some companies as well.
One thing I do think investors and preparers have power over is the gap between a period end and when the numbers actually come out. And I do think there’s pressure to decrease that gap. So I think the US already does a great job at this: Like so if you look at after December 31, how long until some companies start reporting their numbers?
And in the US, it’s mind-boggling how fast some of these companies can report. Like J.P. Morgan’s out in a week. But the rest of the world is way behind. It’s mind-boggling to me how slow some companies are. It’s June now, and some European companies are just doing their AGMs, coming up with their annual reports. By this point, who’s reading the annual report? It’s way too late.
So there needs to be a constant effort by companies to reduce the time it takes to get the financial reports out. And I think companies should be challenging them to get that shorter and shorter and shorter every year. And I think the companies that do it will be at a massive competitive advantage because they won’t be wasting so much time on information that’s stale. They’ll be able to get on with their lives, start running the business, and be able to analyze the business and make decisions with better information. So that part of it, I think, could change.
The whole frequency of reporting, I don’t see moving to continuous reporting or anything like that. I just I don’t see any pressure to do that. I don’t see anybody calling for that. But I do think that things could come out more quickly.
Katharine Christopoulos: Thanks, Erin. Well, I’m obviously going to turn to the preparer. [chuckling] And I’m not sure if you have any thoughts on what Erin has just said, but also, has technology changed the amount of information that you provide in financial reporting? And maybe you can speak a little bit to the time lag?
Andre Besson: So I’d say that technology has been an enabler for us to comply with the additional requirements that have been added to the standards over time. We track the volume of our disclosures. The annual report used to be sixty-odd pages. Now it’s well over one hundred, approaching two hundred. Sorry! Financial statements, not the annual report. The annual report on top of that.
Certainly, technology has been part of how we’ve been able to do that, and at the same time reduce our timelines.
We take a relatively relaxed time frame. It’s like we report in mid-to-late February, but we come out with a fully audited—it’s not a press release—and then audited financials weeks later. It’s everything’s done and dusted, and then we can move on.
So I think very much share what Erin said: Kind of get it over and done with as soon as possible so that you can focus on the current year and move past last year.
A lot of what Erin said also was relevant, I would say, internally. So moving towards that internal reporting coming in line and faster—kind of not waiting for any more for push reports to come from our business units but having more access to pull reporting—is a reality that we’re moving toward.
It’s like we’ve been talking about it for a long time, but I think we’re really starting to see that rolling out now.
Now, some of that depends on having the right information systems infrastructure to be able to pull the information from the reporting units dynamically and no longer rely on somebody to put information into reporting package and somebody else to validate it and push it to the head office.
So you have to put the whole process in place to be able to have that live reporting, but it does allow us to review the figures before they’re final and have that discussion about where we’re landing rather than where we landed. And I think that that is becoming a reality internally, but I think we’re far from having that as part of the external reporting environment.
Katharine Christopoulos: I’ll take some time before we get to the one week, am I right?
Andre Besson: Indeed.
Katharine Christopoulos: So, Rika, as entities continue to add new areas of focus in their reporting (and Anita mentioned this about this notion of disclosure overload), from your thoughts, from an IASB perspective, as disclosure overload, is it still an issue when we talk about moving into this AI world? Is it still an issue?
Rika Suzuki: We believe it’s still an issue, and then already mentioned that the new technology helped investors to consume information more efficiently. It’s very helpful. But at the same time, all investors and also analysts we reach out to told us that they need well-structured information, and they really need linkage between the information where the information is really related or similar. Without having that, it’s almost nightmare for investors to do their job, even though they can search, extract and compare the information. But, if there is no [inaudible], good [inaudible] for information, it’s really difficult.
So what we focus on right now is probably— But information should be provided and also how such information should be provided in the financial statement. So we really need to care about the cost benefit of providing new disclosures. So even though a lot of users sometimes told us we need this information, but maybe it’s good to have. So in that case, we cannot require company to provide such information. We definitely need to understand why users need this information and how they want to use that information. So I think that type of the analysis is indispensable for us.
And about how such information should be provided, I think in the past we only thinking about investors use their own eyes [chuckles] to read information. But now we have to think about the different type of consumption, especially about when they use AI or new technologies. So we have to understand how users use such information digitally.
So one of the ways what we are trying to do is IFRS Foundation has IFRS accounting taxonomy. We develop and maintain such taxonomy to help users search, extract, and compare information more efficiently. It is a guidance for companies to make a digital information providing more efficiently and consistently that help their communication very well.
So I think that is one of the things we are thinking, but at the same time, when we develop IFRS 18. So in the past session, Hagit explained our development process of the IFRS 18. But when we think about that standard, we thought about maybe we need to add more structure on the primary financial statement, especially statement of financial performance. But at the same time, we need to create the room for companies to, especially management, to tell their stories. So because of that, we implement quite a consistent structure on the statement of financial performance. But at the same time, we implement management-defined performance measures that information can help management communication with investors. But at the same time investor can get quite a consistent information on the face of statements. So that is where we are right now.
Katharine Christopoulos: Thanks, Rika. And yes, I’ve noticed over the last, even the last couple years, when I’ve seen work come out of the IASB, when it comes to disclosure, I’ve seen it more in tabular format, in more structured, and I think that part of that is that my understanding is easier to pick up in data tools, or like language tools.
So Anita, how do you see technology impacting the type of information that you’re requiring from your reporting issuers?
Anita Cyr: So we see technology advances in a couple of ways. I think on AI specifically, where we see entities who are asking about or starting to use it as part of their financial reporting processes. For any company that’s looking to adopt AI, I think we have a CSA (Canadian Securities Administrators). We put a staff notice on the applicability of securities law on the use of AI in the capital markets. So I think that provides good guidance, but I think a key message for that is: If you're using that in your financial reporting, it’s still important to realize that we’re not regulating the technology. It’s the output. So if you’re using that as part of your financial reporting process, I think one of the things with human judgments is there’s a documentation, there’s data to support it, there’s data to support any judgments, it might be auditable. And does the AI provide that? Those are kind of questions, I think, we’re thinking issuers should think about as they have to still certify on their internal controls over financial reporting and their disclosure controls and procedures. So really the explainability of AI still applies in that case.
Another area we see in our disclosures is, again, I’m going to go back to some of a very typical issuer that we see. We do have a lot of venture issuers who are early-stage companies. They’re not yet generating revenue, so they rely on capital raising to fund their business operations. In order to maintain investor interest, they may change their business model to capitalize on whatever public sentiment might be at the time. And right now, it's AI. So AI washing, obviously something that—we didn't coin the term—but it’s something we focus on all unsubstantiated or exaggerated claims about the company’s use of AI in their products or services, or how they’re using it to support their business.
I think— and it’s made and it’s problematic promotional disclosure when it’s made with intent to either influence the price of the security or influence an investor’s interest in the security. And if that disclosure, if your statements aren’t substantiated, then that could be false, misleading, and a misrepresentation under securities law, and prohibited. So, definitely, in terms of disclosures, AI washing is a focus of our reviews. It’s also a focus in our policy work in terms of whether we have, again, going back to the investor protections: Are there the right protections in place? For example, if there’s conflicts of disclosure, who’s putting out the disclosure? Who’s paying for it? So, these are some areas we’re looking at from a policy perspective.
And just in terms of AI, I think this is more general than technology and AI, but if there are risks relating to an issuer’s use, material risks have to be disclosed under securities law, so that’s no different for AI. So, I think— and those should be specific to the company, they shouldn’t be boilerplate. So I think we’re going back a lot to disclosure overload, but if it’s specific and material, I think that’s going to still result in useful information to users and investors.
Katharine Christopoulos: Thanks, Anita. And I know we’re almost at time, so for those who have questions, you can get ready with that. But I’m going to turn to Rika again. And, Armand, at the start, you talked about some of the geopolitical tension that’s going on. You’ve heard a lot about the Canadian landscape, and Anita talked a lot about some of our venture issuers. We also have a country to the south of us that very much impacts our capital markets. And so the IASB and your focus is setting standards that are applied globally. So how should standard-setters balance that need for comparability with some of the realities that individual jurisdictions face?
Rika Suzuki: Yes. As I mentioned, we are facing a dual reality. So there is a fragmentation in policy and politics alongside continued integration in capital markets. They still need a consistent, reliable, comparable cross-border information. So meaning of developing high-quality global standards is more important than ever is what we consider right now. So because of that, we continue engaging constructively with legitimate jurisdiction considerations. So because of that, we continue engaging with our stakeholders, having quite a deep conversation on multiple topics to understand what we can do and what we can consider while developing our standards or amending our standards. So that conversation is quite a critical process in standard setting right now.
So, our role is to maintain high-quality global standards. But without working with you, we could not achieve that important role. So, I think consistency in the information is that has economic consequences. So more efficient capital allocations and more accurate risk management, and then we can get to the more stable market. So the case for global standards and global compatibility is now much stronger than ever, in this environment. So I think your support is really necessary for us to navigate this challenging environment.
Katharine Christopoulos: Thanks, Rika. And before I see if anyone has questions— Get ready to put questions. [chuckles]
Erin, you talked about this before, about leases in particular, and it diverging the US GAAP and IFRS, and so I’m not sure if there’s any more you really want to talk about. But this notion of standards are diverging globally and have to affect comparability for you, and really a message more for the standard-setters, whether it be the IASB or the AcSB and other jurisdictional standard-setters, what should we be prioritizing?
Erin Greenfield: Yes. Like I said, I did already touch on leases, and I think that’s probably the most material difference right now. And I don’t think there’s any efforts to converge, but it would be great to see some future efforts to converge there, because I do think it is— There’s certainly investors complaining about it, and it’s hard for people to understand why there’s a difference. So if there’s some way to get standard-setters in a room together and meeting regularly to try and move towards convergence, I think it would be a great idea.
But I do recognize it’s difficult. I also recognize that if you have two different standards, then you can sort of compare them and which one’s better, which— There’s some benefit to having that as well. Because if you just have one set of standards, then it’s really hard to compare it to anything else. But I do think that that should be a major goal, and consistency across standards makes investors lives much, much easier. So I don’t feel like it’s really moving away from convergence. It’s just we have a few areas, and unfortunately, unless there’s a commitment between the two organizations to move to convergence, it will probably get farther and farther away as you can see with IFRS 18 coming.
Katharine Christopoulos: Thanks, Erin. I will just do a plug for the cash flow project for the IASB in terms of one of the things that we mentioned in the AcSB comment letter when it came to leases was the difference between the two but also that you could get a little bit closer with a potential fix in the cash flow project. So we know we put that out there, and we know that’s being considered as part of the cash flow project.
I don’t know if there’s any questions from anyone in the room.
I do have one question. It’s quite long, [chuckling] and I’m not really sure who to address it to. So I guess with no hands up, I guess I’m going to read it.
So with the US SEC recently proposing a shift from mandatory quarterly to optional semi-annual reporting alongside major rollbacks to public company disclosure frameworks to lower compliance costs, we are seeing a clear wave of corporate deregulation. Does the panel see this momentum slowing down the scale and speed of IFRS standard setting? Specifically, are we moving towards a time of simplifying existing standards rather than adding new requirements?
I’m not sure who wants to chat.
Erin Greenfield: I mean, I’ll say it to be disappointing if the changes go through. I think most investors will be disappointed. There’s certainly other jurisdictions that already have semi-annual reporting, but I think those jurisdictions have lower trading multiples; valuations are lower in those jurisdictions. So if that’s what the US is trying to go after, I think that’s a mistake. I think investors don’t necessarily listen to every quarterly call or read every quarterly release by every company, but knowing that that information has been disclosed and is out there if people want it, I think, there’s real value in that. So I think it’ll be a mistake if the US goes down this route. And I hope we don’t see less and less disclosure. But again, it is somewhat political. It’s not just the regulator’s decision. I’m sure the SEC wasn’t clamoring for this change. It was really the president and his friends.
Katharine Christopoulos: I’m not sure if anyone else on the panel wants to weigh in on that question after that response.
Andre Besson: I might just give a perspective of a company that reports interim financial statements semi-annually, and then quarterly in March and September we do sales. And I think it’s an approach. It’s a very common approach in Europe. And I think that people adapt to that absence of P&L and balance sheet information in the off quarters, March and September quarters. I haven’t heard any momentum towards moving towards full quarterly reporting. But at the same time, I think that we would— It would be a big challenge for us to do away with at least the interim sales reporting, because I think that is an important checkpoint for the investors, and I’m sure that investors would have a view of: Yes, well, we wish we had that quarterly report. I think some of the perspective in some of those jurisdictions is that full quarterly reporting brings a kind of short-term focus. And that’s a little bit maybe why some of those countries have accepted that framework as long as they have, and there hasn’t been more of a move towards zero.
Anita Cyr: I’m hoping I’m allowed to ask a question, actually. I wasn’t really going to comment. But to Erin’s point: One thing we are hearing, and we so we were our blanket order, the securities regulators, introduced an optional semi-annual reporting for a subset of venture issuers below certain revenue threshold, and it’s optional. So I guess my question is, even if it’s an optional reporting, is there enough investor pressure that companies would still continue to report quarterly?
Erin Greenfield: I don’t know. But I think in the US— I think if the change goes through in the US, it’s going to be optional. That’s the way it’s written now, and I think a lot of companies will continue to report quarterly. We’ll see. I have no way of knowing the future. But a small mining company in Vancouver is probably different than a large cap company in the US. So yes, I have no idea how it’s all going to go, but I think a lot of big liquid public companies will continue to report quarterly, even if that change goes through.
Anita Cyr: And I guess because it’s probably a million-dollar question—yes, the securities regulators are very aware that the SEC has introduced these proposals for comment. We’re monitoring the situation. I think, Erin, to your point, the stat we had was overwhelmingly majority are not in support. We don’t know what that necessarily means, but I think we’re monitoring the situation, and we’re always doing further assessment of our optional model during the period that we introduced. So I think this is just part of a development that we’re monitoring as we consider what makes sense for us.
Katharine Christopoulos: There’s a question. Thank you, Anita, for answering that question. I did not—
Audience Member: So as a standard-setter, I want people to read financial statements. Question for Erin. We’ve chatted with some similar old-school people like yourself that still read financial statements and what they’ve told us in the past is they’re using the data aggregators for their screen. But then making an investment decision, they are taking the deep dive, they are reading the financial statements. And what they find is the data aggregators get a lot of things wrong. And I’m just wondering— I guess, two-fold question: One, are you noticing the data aggregators getting any better because of things like what the IASB is doing with digital reporting and more structured in the disclosures? But if they’re not, is there anything else, you think, standard-setters should be thinking about in trying acknowledging that investors are using data aggregators? You spend all this time setting standards. Andre spends all this time writing these notes. And to think people are pulling fraction of it through a data aggregator is— it's frustrating
Erin Greenfield: Yes. So it’s not my area of expertise, but I definitely think it's gotten better over time. When I used to build my models twenty years ago, I’d do it from the financials, and then sometimes I’d look at the aggregator and I’d be like, “Oh, wow, they do have it all wrong!”
But I think that’s gotten way better because a lot of it— they call it auditable now. So if you double-click on a number in your Bloomberg, it’ll take you right to the 10K or the annual report, and see exactly where they got the number. And so, because of that, there’s way more feedback like a feedback loop to these aggregators saying, “Okay, you’ve got this wrong, and here’s the proof, and they just send a screenshot saying...” So I think it's gotten way better. But I think you’d be shocked how few people read financial statements. I think you’d be shocked. And so I think there's— I’ve always felt there should be more interaction between standard-setters and these aggregators, and also preparers and the aggregators. Like, how many people at a giant company are looking at Bloomberg and FactSet and S&P Capital IQ to see how their information is being reported? And how many people at the standard-setters are looking at these aggregators to see: Are they interpreting things properly? Are they putting things in the correct line items? I don’t think those sorts of programs exist. And I’ve always been surprised by that.
Katharine Christopoulos: Thanks. Are there any other questions we have? Otherwise, we have two minutes left. We’re good? More questions?
Okay. Well, then I want to thank everyone in person for being here and everyone online and, of course, our lovely panelists. So, thank you very much. It was a great discussion!