Reforms to corporate financial reporting should focus on increasing the quality, usefulness and completeness of disclosures, rather than reducing the volume, according to research by the CFA Institute.
Its 2012 Disclosure Survey report, based on surveys of 15,000 of its members from the investment community, found that the majority wanted to see improvements in overall transparency rather than the introduction of a new disclosure framework of the sort currently under consideration by US and European standards-setters.
Most (80%) of investors believe that volume is not a significant financial reporting concern. They opposed proposals to omit certain information, such as accounting policy footnotes and other publicly available information, citing the need for comprehensiveness, the dynamic nature of information sources, how a complete set of financial statements would be defined, and the cost to investors of collecting such information as their major objections.
Respondents also challenged the idea that increases in disclosure volumes meant that financial reports contain excessive information, with three quarters (76%) saying they were not currently aware of the inclusion of obviously immaterial information.
Instead, they wanted improved financial statement presentation, more detailed information and better disclosure of 'troublesome items', such as off-balance sheet items, going concern issues and estimates.
The CFA Institute's report is critical of the efforts by standards-setters to improve financial reporting, saying that little substantial work has been done other than consolidating certain off-balance sheet vehicles, addressing limited repurchase agreement abuses and adding certain credit risk disclosures, while the financial instruments project remains incomplete.
The report concludes that specific disclosure requirements in the individual accounting standards should be retained and any new disclosure framework should complement, not replace, existing disclosure requirements. Investors also want to see increasing effectiveness of disclosures, better integration of information, and greater emphasis on matters of importance given the highest priority in any disclosure framework project.
