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Disclosure initiative — IASB and FASB joint education session

Date recorded:

The Chairman introduced the session by explaining that it would be a joint session to discuss the disclosures initiatives being undertaken by the IASB and FASB. He said that first there would be a discussion of IASB initiatives to be presented by the IASB staff and there would be a presentation of the FASB disclosure initiatives to be presented by the FASB staff.

Agenda paper 17A — Disclosure initiative

The IASB project manager introduced the agenda paper. She said that it provided an overview of the different disclosure related projects on which the Board was working, including ongoing activities and completed projects. She said that slide 4 provided an analysis of the problems related to disclosure, and suggested that they related not only to disclosure overload. Deficiencies also relate to entities not providing relevant information and that the information was not being provided effectively and efficiently. She said that the Board had split the projects between those that would enable preparers to make better judgements (including some targeted amendments such as those completed in late 2014, a project on materiality and the principles of disclosures project), on the other hand, she said that there were specific projects that would focus on how the Board could write better disclosure requirements (for example focusing on individual disclosure issues, IAS 7, IAS 8, and by reviewing existing standards). She then discussed some of the projects in more detail. Slide 6 explained in more detail the completed amendments to IAS 1 which were clarifying amendments for example in regards to materiality. She then explained slide 8, which discussed the research projects, slide 9 discussed about the components of the financial statements and their roles, and slide 10 discussed the relationships with other projects. She then opened the discussion to the Boards.

One FASB Board member indicated that he noted that there were differences in their work as compared to IASB in terms of information regarding alternative performance measures. He was concerned that it would be difficult to put non-IFRS information into IFRS financial statements. The IASB project manager indicated that it was difficult for them to work with the terminology and instead they project was predicated on the view that if information was presented in accordance with IFRS then it would be considered to be IFRS. She said that using the term non-IFRS can be misleading. She said that they were focusing on information presented on the face of the financial statements and that it should be fairly presented in accordance with IFRS, and reconciled when necessary. The FASB Board member said that under US GAAP, non-GAAP information had to be presented outside of the financial statements because the financial statements had to be presented under US GAAP; he also acknowledged that in the US there were various rules and regulations that dealt with this issue. The IASB project manager indicated that since IFRS was being used in different jurisdictions there were different views around this issue.

One FASB Board member asked about digital reporting, he asked whether the IASB view was that information requirements would be inter-exchangeable either in paper or online, or their view was that digital information would be supplemental. The IASB project manager responded that they were working with the objective of making the standards more neutral to communicate the information; accordingly, it would not matter whether the information was presented on paper or online. She also said that cross referencing would be easier in the digital world; however, moving away information to the company’s website could bring other risk such as losing control of the information.

One FASB Board member commented on the recent FASB decision that materiality would be a legal concept; he asked whether a similar concept should be applied under IFRSs to give more flexibility considered that IFRSs were being used in multiple jurisdictions. The IASB Chairman said that when IFRS was being used in a particular jurisdiction it was considered that IFRS was the law. One IASB Board member pointed out that it also provided more confidence to users because regardless of whether the information would come from it would provide the same information; also a user did not need to know the particular regulation of the country where an entity operated. She also said that the principle requiring that information should be understandable provided another anchor for what was or not material, also she said that IFRS did not conflict with the US Supreme Court decision because it would not cause omission of information.

One FASB Board member asked about the interaction of non-IFRS information with auditing and particularly the impact in the audit opinion. He said that entities made different definitions of non-IFRS information and it posed a challenge to auditors. The IASB project manager responded that they focused on the boundaries of financial statements and the judgements needed to comply with the objectives of IFRS presentation. The FASB Board member said that under US GAAP non-GAAP information was presented outside of the financial statements. The IASB Chairman said that he liked this approached because it was clearer.

The Chairman then moved the discussion to the FASB presentation.

The FASB project manager presented the agenda papers (17 B, C and D) and said that the FASB had taken a similar approach in terms of having different projects to address different issues regarding disclosure. There were projects that focused on facilitating the Board decision making process, for example the boundaries of the notes, forward looking information, and there were other projects that focused on the entities decision making process for example fair value measurement, benefits plans, inventory and income taxes. He then opened the discussion to the Boards.

One IASB Board member asked whether there was a conflict in presenting certain information outside the financial statements when sometimes that information was necessary to understand the financial statements. He said that for example in some jurisdictions the MD&A section was presented separately from the financial statements. One FASB Board member responded that there were rules and regulations that what information should be presented with the financial statements as a package and to be issued at the same time. He said that it was also important that the financial statements should stand on its own because otherwise it could not be audited.

One IASB Board member asked about the negative consequences that could result from disclosure as discussed in agenda paper 17C. The FASB project manager responded that the discussions were ongoing and they were considering examples such as potential legal harm, competitive issues, and reputational risk.

One IASB Board member asked about the FASB project regarding disclosures on fair value measurement. She said that in terms of disclosure there had been convergence between US GAAP and IFRS, accordingly, it would be appropriate to set up a process in place to work together on future changes.

One IASB Board member said that it would be important for the IASB to clarify the differences on the concept of materiality between IFRS and US GAAP because there could be a potential issue in terms that users could consider that IFRS information was not as reliable as US GAAP.

The IASB Chairman closed the discussion.

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