What does a good accounting position paper look like?

In our March article, we explored the growing importance of accounting position papers in supporting high-quality financial reporting and audits. Building on that foundation, 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.

Why are accounting position papers important?

As discussed in our March article, ASIC’s Report 799 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.

Position papers are especially valuable when navigating complex or judgemental accounting issues, new standards, or evolving market conditions. They serve as a structured record of management’s assessment and application of relevant accounting standards, providing clarity, consistency and audit evidence.

If your organisation is required to lodge financial statements under the Corporations Act 2001, whether you’re a company, registered scheme or disclosing entity, this article is for you. We now shift from why accounting position papers matter to how to prepare them well.

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 and accurate
Logically structured, and
Free from grammatical, punctuation and spelling errors.

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

Section	Key focus
Purpose	Why the paper was prepared, intended audience, and decisions required.
Background	Key features of the transaction or arrangement, including contractual terms and conditions, relevant to determining the applicable accounting standard(s), interpretation(s) and accounting requirements (classification, recognition, measurement, presentation and disclosure).
Applicable standards	Management’s assessment of applicable standards, interpretations, agenda decisions issued by the International Accounting Standards Board’s Interpretation Committee (‘IFRIC’), other pronouncements and scope and definition criteria.
Accounting analysis	Management’s assessment and analysis of the relevant accounting requirements and guidance and how it impacts the accounting for the transaction or arrangement, including: The initial accounting - recognition criteria, timing and initial measurement The subsequent accounting - subsequent measurement, valuation (if applicable) and derecognition Availability and applicability of accounting policy options, practical expedients and rebuttal presumptions, and Any applicable transition requirements.
Financial reporting impacts	Management’s assessment of the financial reporting impacts of their conclusions, including: 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, including:

New, unusual and/or complex transactions – for instance, we wouldn’t expect to see management prepare a position paper in respect to a minor change in customer contracts that extends the payment terms for all customers from 14 to 21 days. We would, however, expect to see management prepare a position paper to explain the entity’s accounting for a modification of a material customer contract that, for instance, substantially extended the term of the contract and/or incorporated the provision of additional goods and/or services.

Other new, unusual and/or complex transactions that we consider would warrant separate accounting position papers include:
1. Complex financing arrangements involving debt and equity components
2. Put and call options over ownership interests in a business
3. Deferred consideration arrangements arising from asset or business acquisitions
4. Sale and leaseback arrangements
5. Customer contracts that involve the provision of multiple goods and/or services
6. Modified debt arrangements
7. New share-based payment arrangements, including employee and director share loan arrangements, and
8. Power purchase agreements

Transactions or arrangements facilitated by multiple separate contractual arrangements
New accounting standards or interpretations applicable for the first time and new agenda decisions issued by the IFRIC, and
The entity’s financial statements require material restatement and/or reissue due to a current or prior period error.

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

From our experiences, there is a range of mistakes that management typically makes when preparing accounting position papers. Some of these mistakes can be attributed to management not being experts in IFRS® Accounting Standards and technical accounting requirements. Alternatively, some mistakes are attributable to management failing to identify the key features of the transaction or arrangement as they are relevant to the application of IFRS Accounting Standards.

Examples of common mistakes made by management in preparing accounting position papers include:

Identifying the wrong accounting pronouncement(s) to be applied to the transaction or arrangement. This can occur for a range of reasons, including management failing to:

Fully consider and analyse all of the potentially applicable accounting pronouncements
Identify and consider the implications of relevant scope inclusions and exclusions, and
Correctly interpret the scope and definition criteria in light of the key features of the transaction or arrangement.

Identifying the right accounting pronouncement(s) for the transaction or arrangement, but applying the wrong accounting requirements and guidance to the accounting transaction or arrangement. This often occurs because management incorrectly applies definitional criteria and therefore incorrectly classifies the transaction or arrangement. As a consequence, management applies the right pronouncement(s) but the wrong requirements from those pronouncement(s), and
Failing to identify and reflect the most recent technical thinking on the interpretation and implementation of IFRS Accounting Standards as published by standard setters, the IFRIC, accounting firms and professional member bodies.

Key takeaways

Management and, ultimately, those charged with governance (typically directors), are responsible for the preparation and fair presentation of the entity’s financial report in accordance with the applicable financial reporting framework. These responsibilities include determining accounting policies and accounting treatments in accordance with these policies.

To convincingly demonstrate good governance, risk, culture and compliance practices, audit committees, directors and preparers of financial reports should always look to have robust accounting position papers with appropriate analysis and conclusions, referencing relevant accounting standards, whenever they enter into unusual or complex transactions or arrangements, or they are required to apply accounting pronouncements that necessitate significant judgements, assumptions and/or estimates.

Need help?

BDO provides expert support for entities preparing for audits or drafting accounting position papers. Contact BDO’s IFRS & Corporate Reporting team for assistance. 