Deloitte comment letter on EFRAG's disclosure framework Discussion Paper
14 Jan 2013
Deloitte's IFRS Global Office has submitted a letter of comment responding to the European Financial Reporting Advisory Group (EFRAG), Autorité des Normes Comptables (ANC) and the UK Accounting Standards Board (ASB) Discussion Paper (DP) 'Towards a Disclosure Framework for the Notes', issued in July 2012.
The Deloitte comment letter provides answers to specific questions presented in the DP, and also provides general feedback, broken down into several issues:
- Objective and scope — In order to achieve the objective of improving the quality of information reported in the notes to the financial statements, Deloitte believes that it is critical that the volume of irrelevant and redundant information therein is decreased. Further, we agree that the current project should focus on the notes to the financial statements and not consider the broader issues affecting corporate reporting. The project will potentially lose its impact if it attempts to broaden its scope beyond the requirements of accounting standards.
- Clarifying the purpose of the notes to the financial statements — The purpose of the notes to the financial statements needs to be defined and we consider the definition proposed in the EFRAG DP a good starting point. It is important that the practical implications of applying this definition are analysed further.
- Articulation of a Disclosure Framework—
- It is suggested in the EFRAG DP that the application of the disclosure framework will not result in a significant change to the information currently required in the notes. We do not think that a disclosure framework that yields a broadly similar information set satisfies the objective of the project.
- We are concerned that the EFRAG DP does not consider the implications of accounting standards moving towards being more principles-based and therefore placing more reliance on those preparing financial statements applying judgement on what they consider to be relevant to users of the financial statements. The standard setter needs to more clearly define relevance and materiality in the context of disclosures to provide preparers with more detailed guidance to assist in determining more appropriate disclosures.
- Strengthening the application of materiality to disclosures — Ambiguity in practice about what information is considered necessary and sufficient to satisfy disclosure requirements contributes to the current disclosure overload problem. We think it is for the IASB and IAASB to strengthen the concept of materiality and provide more robust guidance that is acceptable to stakeholders including preparers, users, auditors, and regulators.
- Improving communication — There needs to be greater consideration of the inherent trade-off between relevance and comparability in the communication principles outlined in the EFRAG DP. In our view, in order to enhance relevance, some level of comparability needs to be maintained to enable inter-period and inter-entity comparisons to be made.
Note: The US Financial Accounting Standards Board (FASB) also issued an Invitation to Comment on the disclosure framework in July 2012. Deloitte (United States) responded with a separate comment letter to the FASB, echoing the same themes as the Global response above.