There is an urgent need to address the volume and quality of disclosures in financial statements, according to the responses to a discussion paper put out by UK and European standards setters, reports Chartered Accountants Northampton Harris & Co.
The Financial Reporting Council (FRC), the French accounting regulator, Autorité des Normes Comptables (ANC) and the European Financial Reporting Advisory Group (EFRAG) have published the feedback on their discussion paper Towards a Disclosure Framework for the Notes which looked at ways to improve the information in the notes to the financial statements and reduce excessive amounts of immaterial comments.
Respondents to the consultation, held last year, are in agreement that immediate action is needed to address the quality of disclosures in financial statements. Their replies indicate they want to see a more consistent and rational approach to disclosures, and they urged standard setters to work with regulators and auditors to make improvements, particularly in relation to simplifying disclosure requirements.
The responses indicated widespread support for the 14 proposed ‘key principles’ covering the purpose and content of the notes of accounts; setting the disclosure requirements; applying the requirements; communicating information; and succeeding in practice.
There was also strong support for the proposal that the notes should focus on transactions and events that have occurred at the reporting date, and that forward-looking information should be provided only when it met the proposed definition of the purpose.
Respondents said they wanted to see further discussion in three main areas: disclosures in interim annual reports; confidentiality of information; and pro-forma financial information and other non-GAAP disclosures.
In its executive summary, the partnership said it was pleased with the level of support received for the discussion paper and felt the responses support ‘the strategic aim of its proactive work in influencing the development of global financial reporting standards’.
They have asked the International Accounting Standards Board (IASB) for immediate action on disclosure overload, and the regulator is undertaking a short term project looking at the options. These could include amendments to IAS 1, Presentation of Financial Statements; guidance on materiality; changing the wording in disclosure requirements to make them less prescriptive; a broader review of disclosure requirements and possibly additional consultation.