Disclosure Initiative: Targeted Standards-level Review of Disclosures

Date recorded:

Cover paper (Agenda Paper 11)

In March 2021, the IASB published ED/2021/3 Disclosure Requirements in IFRS Standards—A Pilot Approach. The comment period ended on 12 January 2022. Among other activities during the comment period 50 companies participated in fieldwork by applying the proposed disclosure requirements for one or both of IFRS 13 and IAS 19 and IASB members and staff met with 80 users of financial statements.

The purpose of this meeting was to provide a summary of the fieldwork findings and feedback received from these stakeholders and ask the IASB if it has any questions or comments.

Preparer fieldwork—overview and participants (Agenda Paper 11A)

The purpose of this paper was to provide an overview of the fieldwork, including the participants.

IASB discussion

There was not much discussion on this paper. One IASB member asked whether the smaller companies that were included in the outreach were publicly listed, to which the staff replied that one of them was. Another IASB members suggested utilising mid-tier firms for further outreach as they tend to audit these smaller companies.

Preparer fieldwork results—Guidance for the IASB (Agenda Paper 11B)

This paper summarised the preparer fieldwork findings on the proposed Guidance for the IASB in the ED and asks the IASB whether it has any questions or comments related to those findings.

Most participants supported the proposals for the IASB to work closely with users of financial statements and develop overall and specific disclosure objectives. Participants generally understood the proposed objectives. They said the objectives were helpful because they enabled entities to understand what information users want and why they want it—thereby helping them to perform better judgement about which information is material.

However, in light of the fieldwork, participants expressed a range of views on whether disclosure of the proposed items of information should be mandatory. Some participants agreed that, in most cases, disclosure of the proposed items of information should not be mandatory, some disagreed and the remaining participants did not provide a conclusive view either way.

IASB discussion

IASB members acknowledged that many preparers and users have liked the concept of having objective-based disclosure requirements. Some IASB members stated that the new disclosure structure should also consider the smaller companies that are applying IFRS Accounting Standards. Many IASB members agreed that it is important to find the right balance such that the objectives of the disclosures, user needs and preparer cost benefits are met. Two IASB members also said that preparers must not use the proposed approach as an opportunity to disclose as little as possible on account of transparency or disclosing commercially sensitive information.

Some IASB members mentioned that providing educational material may not help meet the objective. However, one IASB member stated that illustrative examples for some of the new disclosures should be provided.

Two IASB members said that they did not like the checklist approach as it creates a barrier in applying materiality and judgment by the preparers. However, some IASB members agreed that only stressing the requirement of materiality is not the solution either.

Two IASB members agreed that the new approach should be applied gradually rather than to all the standards at once.

Preparer fieldwork results—IFRS 13 Fair Value Measurement (Agenda Paper 11C)

The purpose of this paper was to summarise preparer fieldwork findings on the fair value measurement proposals in the ED and ask the IASB if it has any questions or comments related to those findings.

Most participants found the proposed disclosure objectives for IFRS 13 clear and said they provided a useful basis for understanding the information needed by users of financial statements. However, consistent with the findings in Agenda Paper 11B, fieldwork participants expressed mixed views on whether they supported the IFRS 13 proposals overall. In light of the fieldwork, some participants strongly supported the proposals, some strongly disagreed with them, and there were a range of views in between those two extremes.

IASB discussion

IASB members acknowledged the feedback but warned that the comments should be distinguished by responses that do not like IFRS 13 and those that do not like the proposed disclosure requirements. The IASB should focus on the latter. Many IASB members agreed that sensitivity analysis provides relevant information to the users while some IASB members expressed concern on the alternative measurement proposal.

It was mentioned that illustrative examples would be helpful but the IASB needs to exercise caution so it does not become model disclosures.

One IASB member concurred with the preparer comments that certain requirements may result in a huge disclosure notes for certain industries or may result in duplication.

Preparer fieldwork results—IAS 19 Employee Benefits (Agenda Paper 11D)

The purpose of this paper was to summarise preparer fieldwork findings on the employee benefit proposals in the ED and ask the IASB whether it has any questions or comments related to those findings.

Most participants found the proposed disclosure objectives for IAS 19 clear and were able to understand the user needs described. However, consistent with the findings in Agenda Paper 11B, the fieldwork participants expressed mixed views on the proposals for IAS 19 overall. In light of the fieldwork, some participants strongly supported the proposals, some strongly disagreed with them, and there were a range of views in between those two extremes.

IASB discussion

Sensitivity analyses were also discussed in this paper. Particularly, one IASB member said that given entities have to give the best estimate of their pension liability, there should not be alternative measurements. This should be covered by the sensitivity analysis, however there should not be a sensitivity analysis for changes in the mortality table as these changes are usually minor and do not have a significant effect on the pension liability. That IASB member also mentioned that instead of having mandatory disclosures for all types of pension plans, the focus should be on the high exposure area such as defined benefit plans and frozen pension plans.

One IASB member suggested to distinguish comments that are about how the IASB writes disclosures in general and those that are specific to the proposed IAS 19 requirements. The feedback showed that most interest lies with disclosures about defined benefit plans, so this should be the focus of future IASB discussions when discussing IAS 19.

On the comments about commercial sensitivity, one IASB member said that the IASB should write the requirements in a way that useful disclosures can be provided without forcing companies to breach confidentiality rules.

The Chairman noted concerns from preparers that switching to the new disclosures is a big exercise for entities. He asked whether the staff believed this was a one-off effort or an ongoing exercise, to which the staff replied that they believe it is a one-off exercise unless the plans change significantly during the year.

Feedback from users of financial statements (Agenda Paper 11E)

The purpose of this paper is to inform the IASB about feedback received from users of financial statements (users) on the ED and ask the IASB whether it has any questions or comments.

Most users supported the IASB’s proposals to work closely with users to develop disclosure objectives. They agreed there is a need for information that is more useful, and that this could be achieved by linking disclosure requirements directly to user needs.

Some users, including many of the buy-side investors that the staff spoke to, supported the proposed approach of requiring companies to comply with disclosure objectives rather than prescriptive requirements to disclose particular items of information. They hoped the approach would result in companies disclosing information that is more relevant and removing unnecessary information.

However, many other users raised concerns about removing or reducing prescriptive requirements to disclose particular items of information. They were concerned about losing information that they get today, and about the effects of the proposed approach on comparability and digital reporting. Some of these users explained that they do not consider immaterial information to be a problem and they are able to extract the information they need, even from very lengthy financial statements.

Some of the users that had concerns suggested the IASB should use a combination of both disclosure objectives and minimum prescriptive disclosure requirements. They said this should help entities disclose more useful information, while still ensuring comparability. A few said they prefer prescriptive disclosure requirements to disclosure objectives, particularly for items of information that are highly technical (such as on pensions) and quantitative in nature

Some users of all types commented on the difference in disclosure quality between entities, expressing concerns about the different ways entities might approach application of the proposals. For example, one said that the ‘top 25%’ of entities—those who ‘choose wisely and make decent judgements’—would likely improve their disclosures applying the proposals. However, they were concerned about the ‘bottom 25%’. Users said these entities might be unable to apply effective judgement or might misuse the freedom offered by the proposed approach.

IASB discussion

IASB members noted the mixed views among users and given they are the target group for the end product (i.e. financial statements), their concerns should be taken seriously. It was noted that there needs to be some middle ground between descriptive disclosures (i.e. checklist approach) and the objectives-based approach. Many users prefer the checklist approach as it gives them all the information they need. They were not too concerned about immaterial information as that confirmed that still gave information, being that there is no material balance. Preparers often also like a checklist as then they cannot be challenged by the auditor about not disclosing a piece of information. In a objectives-based approach, jurisdictions could develop their own checklist, which is even worse as then the IASB has no control of those checklists.

One solution would be minimum items that must be disclosed but the challenge would be for the IASB to determine which are the minimum items.

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