ICAS and the European Financial Reporting Advisory Group (EFRAG) have published a report calling for more analysis of what capital providers require from financial statements o underpin the International Accounting Standard Board's (IASB) drive to deliver a modernised and effective international financial reporting framework.
The joint review focuses on the importance of financial statements in the economic decision making process.
Professor Mark Clatworthy, one of the report’s authors, said: ‘Despite the wide variety of alternative sources available, it should reassure standard setters that audited financial statements occupy a unique position in capital markets, despite their inherent limitations. They are unique in being regulated, recurring, standardised and independently verified and thus enhance the utility of other sources of information, making them flourish.’
However, the report also stressed that financial statements are used in different ways by various capital providers with different needs and objectives. This reflects the differences in the nature of debt and equity securities, investors’ ability to obtain and analyse alternative information sources, and varying levels of sophistication across capital providers’.
ICAS and EFRAG say this raises fundamental questions about how IASB can balance these different needs in its standard setting. As a result they believe that the IASB’s standard-setting process must be supported by a sound analysis and understanding of how the information that results from the application of IFRS is used.
Michelle Crickett, ICAS director of research, said: ‘The report, while offering some reassurance to the IASB on the importance of financial statements to the capital market, raises some fundamental issues for standard setting and financial reporting which should be considered by the IASB.’
The report, The Use of Information by Capital Providers, is available here: http://icas.org.uk/clatworthy/
