FSB Enhanced Disclosure Forum (Update) — Education session (IASB only)
On 29 October 2012, the Enhanced Disclosure Task Force (EDTF) issued a report: Enhancing the Risk Disclosures of Banks. The purpose of the report is to help banks improve their communication with stakeholders in the area of risk disclosures.
At today’s meeting, Jerry Edwards, Senior Advisor on Accounting and Auditing Policy at the Financial Stability Board, and Russell Picot, Group General Manager and Group Chief Accounting Officer at HSBC Holdings plc and one of the co-chairs of the EDTF (collectively, the presenters), presented the findings and recommendations from the report to the IASB. The IASB was not asked to make any tentative decisions at this meeting.
The presenters noted that the fundamental principles contained in the report apply to all banks. However, enhanced disclosures have been developed specifically for large international banks that are active participants in the equity and debt markets. Adoption of the recommendations in the report is voluntary.
The report provides seven fundamental principles to provide a strong foundation from which to achieve transparent, high-quality risk disclosures that enable users to understand in an integrated manner a bank’s business and risks:
- be clear, balanced and understandable;
- be comprehensive and include all of the bank’s key activities and risks;
- present relevant information;
- reflect how the bank manages its risks;
- be consistent over time;
- be comparable among banks; and
- be provided on a timely basis.
The EDTF developed 32 recommendations in the report across seven risk areas, with some examples of how information may be presented.
Following from the presenters’ presentation, one Board member noted the report highlights that if disclosure of particularly commercially sensitive or confidential information would unduly expose the bank to litigation or other risks, then the level of information provided will need to balance confidentiality and materiality. He asked if limitations in disclosing commercially sensitive information is expected to inhibit the value of disclosures provided. In response, one of the presenters expressed a belief that commercial sensitivity should not be used as a shield for appropriate disclosure. He believed that disclosures could be made appropriate without tripping any apparent commercial sensitivities.
Another Board member, looking at the principles outlined in the report, asked whether the principles were hierarchical (in situations in which principles contradicted each other). The presenters acknowledged that there may be some tension between different principles (e.g., disclosures should reflect how the bank manages its risks versus be comparable among banks). They noted that preparers would have to apply some level of judgement regarding the level of detail that is needed to achieve the risk objectives.
Another Board member asked whether the presenters anticipated banks changing their disclosures voluntarily. The EDTF originally visualised that many of its recommendations may be gradually adopted by banks in 2012 or 2013. However, some enhancements would take longer to develop and implement. The presenters believed that the banks represented in the EDTF would be adopting the recommendations in the report (although not necessarily entirely in 2012). It was the presenters’ hope that EDTF banks would serve as anchors in working with jurisdictional peers to broaden the adoption of the report recommendations in 2012 and beyond.
Absent the above, Board member comments were generally limited to clarifying questions regarding report findings.
The IASB Chair thanked the presenters for their time and efforts.
In a previous 2 November 2012 press release, the IASB had noted that the EDTF report "complements our own efforts to enhance transparency and the usefulness and comparability of financial statements. Furthermore, the IASB has recently started a revision of its Conceptual Framework and will consider the EDTF recommendations as it develops new financial reporting disclosure principles”.