What is the true value of a good accounting position paper?

What is the true value of a good accounting position paper? 

ASIC has recently made its views clear: robust accounting position papers are an essential feature of high-quality financial reporting outcomes. These views are no doubt expressed directly to entities whose financial reports come under ASIC’s surveillance program.

As with many professional services,  technical accounting advice is often perceived as an expensive form of insurance. This perception leads many  CFOs and finance managers to take on the challenge of preparing accounting position papers themselves, particularly for complex and judgemental transactions and arrangements.

While we recognise the competing demands on an entity’s cash flows, including those placed on its financial reporting function, our experience shows how quickly and easily disputes over financial reporting matters can escalate. In this context, the belief that preparing position papers in-house is a cost-effective solution can often prove to be a false economy. 

Why are accounting position papers important? 

As highlighted in our July article and reinforced by ASIC’s Report 799, robust accounting position papers are not just helpful, they’re essential. The regulator made it clear that audit committees, directors, and preparers of financial reports play a critical role in supporting quality financial reporting and audits. One of the key building blocks for achieving high-quality outcomes is:

In previous editions of Corporate Reporting Insights, we’ve outlined why these papers matter, not just for compliance, but for clarity and confidence in financial reporting. Key reasons include:

• Correctly identifying and documenting the applicable accounting standard through accurate interpretation of scope and criteria
• Considering the specific context of the transaction or event, including the entity’s objectives  and the implications of the accounting treatment
• Navigating the ‘Gaps in GAAP’, particularly relevant for entities operating in fast-evolving markets or with innovative products.

When should finance teams prepare their own accounting position papers?

Finance teams can prepare their own accounting position papers, provided they have sufficiently experienced and knowledgeable staff who have the time available to perform the work. Where these conditions aren’t met, we strongly advise engaging experienced and knowledgeable consultants, particularly when dealing with complex transactions or judgemental accounting requirements.

Having worked with most types of business – small to large, private and listed, for-profit and not-for-profit – across a range of industries and over the past 20 years, there are some common factors that weigh against corporate finance teams preparing their own accounting position paper, such as:

• Time and effort: Corporate finance teams are becoming increasingly lean and focused on managing ‘business as usual’ functions and matters. Consequently, few, if any, corporate finance teams have the staff time to dedicate to: (i) preparing accounting position papers for transactions or arrangements they may have no previous experience with; and (ii) negotiating with auditors and regulators on the proposed accounting treatment
• Compliance risk: Comprising the risk of financial statement restatement, stakeholder dissatisfaction, reputation risk and the cost of a damaged brand name
• Cost: The direct and indirect costs of lost staff time and heightened compliance risk.

The false economy of doing it yourself

To understand whether a technical consultant’s fee quote represents value for money, it is helpful to consider (as a first step) the value of the finance staff's time lost to preparing an accounting position paper.

Estimating the cost of internal preparation

Let’s take the example of a financing agreement with an early termination option, an equity conversion feature, and an interest rate ceiling and floor. The documentation for this agreement is likely to be in the vicinity of 60-80 pages.

A technical consultant who charges by the hour might estimate that such an agreement would take approximately 20 hours to complete, comprising:

• Review and summarise the agreement
• Preparation of draft advice, including 2 hours quality review
• Discussion of the draft findings with management
• Discussion of the findings with the clients’ auditor, and
• Finalising the advice.

As the finance agreement is significant to the company and its directors, both the company’s CFO and Senior Finance Manager have to be comfortable with the position, as the board and audit committee will be interrogating them on the accounting treatment.

While it may appear more economical to allocate internal resources to tasks like preparing the position paper, this can be a false economy. Engaging a consultant not only ensures a high-quality, well-researched outcome but also enables the leadership team to remain focused on high-level, strategic initiatives that deliver broader organisational impact. This approach reflects a considered use of resources and reinforces the value of specialised external support.

The hidden time burden for internal teams

However, we know it’s going to take the relatively inexperienced Senior Finance Manager and CFO much more time to:

• Source, read, understand and summarise the relevant accounting pronouncements
• Review the most recent published technical thinking among the standard setters, accounting firms and professional bodies on the interpretation and implementation of the applicable accounting pronouncements
• Identify the key terms and conditions of the financing agreement relevant to accounting treatment(s) required under applicable accounting pronouncements
• Prepare a draft version of the position paper for consideration by the board and the company’s auditor
• Engage with the company’s auditor (and possibly the auditor’s technical accounting team) on the proposed accounting treatment
• Engage with the company’s audit committee on the proposed accounting treatment, and
• Finalise the position paper for distribution to the company’s auditor, board and audit committee.

It’s hard to estimate accurately how much more time the relatively inexperienced CFO and Senior Finance Manager might need, but let’s assume for the sake of this example that it will take them five times the time it takes the consultant (i.e., approximately 2.5 weeks collectively).

Risks that compound the cost

This time and dollar budget, however, ignores a number of potential risks and opportunities that could make the preparation of the position paper much more challenging and costly, including:

• The Senior Finance Manager and CFO are collectively finding 2.5 weeks free in their calendar to dedicate to the preparation, socialisation and finalisation of the position paper
• Either or both the company’s auditor and audit committee challenging the proposed accounting treatment, and (assuming their concerns are capable of being resolved, noting there are ‘gaps in GAAP’ on accounting for financial instruments), the time associated with engaging with either or both of these parties to resolve their concerns, and
• What if the financing agreement had not been finalised at the time the finance team prepared the position paper, and the Board directs the Senior Finance Manager and CFO to: 
  • Update the position paper for subsequent changes agreed with the lender in order to finalise the financing agreement, or
  • Evaluate and document the accounting implications of the Board negotiating further changes to the financing agreement, such as a change in the equity conversion feature, the removal of the termination option, the removal of the interest rate ceiling and/or floor, a change in the interest rate and/or a change in the maturity date of the financing facility.

All of these potential risks and opportunities will undoubtedly have the potential to impose further costs on the Senior Finance Manager, CFO and the company. But the potential risks (and costs) don’t necessarily stop here.

Longer-term risks to consider

Two further risks the CFO, Senior Finance Manager, audit committee and board must contemplate in relation to the financing agreement and associated accounting position paper are:

• What if the company changes its auditor in the near future and the new auditor doesn’t agree with the accounting treatment applied under the approach proposed in the accounting position paper?
• What if the company regulator doesn’t agree with the accounting treatment applied under the approach proposed in the accounting position paper?

In our experience, the time (and energy) spent in socialising and building confidence and consensus on an accounting treatment is often the same as (but can easily be greater than) the time it takes to prepare the position paper. 

Final reflections

Across this three-part article series, we’ve considered what makes a good accounting position paper, why they matter, and the practical realities of preparing them. The consistent theme has been clear: robust, well-considered documentation isn’t just about meeting regulatory expectations, it’s about supporting sound decision-making, reducing risk, and building confidence among stakeholders.

As financial reporting continues to evolve, so too does the need for clarity and rigour in how accounting positions are formed and communicated. Whether prepared internally or with expert support, a good accounting position paper remains one of the most effective tools available to finance teams, boards and auditors navigating complex reporting challenges.

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.