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UK ASB publishes a report on reducing clutter in financial reports

06 Apr 2011

The Accounting Standards Board (ASB) of the United Kingdom Financial Reporting Council (FRC) has published a report Cutting Clutter: Combating clutter in annual reports.

The report follows on the from the issue of Louder than Words: Principles and Actions for Making Corporate Reports Less Complex and More Relevant, which was published in June 2009 (see our earlier story).

The report outlines recommendations and methodologies for reduced clutter under existing reporting requirements (including IFRSs):

  • A call for action to reduce barriers to reducing clutter – focusing on materiality, tackling longstanding explanatory material in printed annual reports and engaging with other stakeholders
  • Changing some of the behaviours that currently serve as barriers to cutting clutter – addressing issues such as "simply repeating disclosures made in prior years" to "fear of challenge from regulators"
  • Disclosure aids to enable preparers to tackle clutter – providing illustrative examples on governance, accounting polices and share-based payments.

In relation to materiality, the report notes the following:

IAS 1 states that "An entity need not provide a specific disclosure required by an IFRS if the information is not material." Yet it is exactly these immaterial disclosures that we observe and define as clutter. Is this message not understood or not getting through, or does it need to be refined to change the default of including everything?

One of the key reasons for including all disclosures given by interviewees was a "lack of confidence in making the judgement between disclosures that are material and those that are not." It is apparent that the lack of clarity around what materiality means from a disclosure perspective continues to be a significant barrier in both preparing and auditing financial statements.

The push to reduce the volume of disclosures in financial reports has been increasing in recent times. In response to a request from the IASB, the Institute of Chartered Accountants of Scotland (ICAS) and the New Zealand Institute of Chartered Accountants (NZICA) are working on project with the aim of reducing the volume of disclosure requirements in IFRSs (see our earlier story).

The ASB hopes that the report will stimulate debate and action on this issue, and welcomes any comments by 30 September 2011. Click for ASB press release (link to FRC website).