The International Accounting Standards Board (IASB) should be looking at making financial statements shorter, more relevant and more enticing to read, and with greater use of technology, according to feedback from the Financial Reporting Council (FRC) and the European Financial Reporting Advisory Group (EFRAG)
The two bodies organised a joint outreach event covering the IASB’s Discussion Paper DP/2017/1 Disclosure Initiative— Principles of Disclosure, in a bid to discover European constituents views on the topic.
IASB has said that ultimately, it is expected that the discussion paper could lead to amendments to IAS 1, the standard covering general disclosure requirements, or the development of a new general disclosure standard.
Participants said the IASB should consider the implications of developments in technology on the presentation of financial statements and disclosures in greater depth, looking at the future of reporting.
They also felt that the boundaries of the financial statements were not always clear. Some doubted that the financial statements should be a stand-alone document and favoured cross-referencing of some information.
Overall, the view was that the focus should be on the quality of the disclosures in the financial statements and not the length of the financial statements.
On the issue of accounting policies disclosure, participants said entities should describe how they have applied the requirements in IFRS standards to their own circumstances, rather than simply providing a generic description.
They also wanted IASB to test some cases of disclosures to understand why users find certain information useful. Examples given included the disclosure of quality of earnings; and a sensitivity analysis including ranges of the carrying amounts of an entity’s most significant judgments and sources of estimation uncertainty.
Participants warned that financial statements have become less relevant and less attractive to read. Studies in the UK showed that some investors focus on preliminary announcements of companies instead of the financial statements. One reason was that the latter were often long and complex.
On that basis, there was support for further exploration of the ‘core and more’ proposals in The Future of Corporate Reporting published by FEE (now Accountancy Europe) in 2015.
The purpose of the event was to receive input for the UK FRC’s comment letter to EFRAG and the IASB. The consultation on the IASB discussion paper is open until 2 October.
IASB’s discussion paper on the principles of disclosure is here.
The FRC/EFRAG joint discussion paper is here.
