The paper, entitled Thinking about disclosures in a broader context: A road map for a disclosure framework, follows on from an earlier FRC paper published in 2009.

The FRC notes that the paper complements the discussion paper Towards a Disclosure Framework for the Notes which it joint published in July 2012 with the European Financial Reporting Advisory Group (EFRAG) and the Autorité des Normes Comptables (ANC) in France.

In contrast to the narrower focus of the EFRAG/ANC/FRC paper, the FRC paper sets out the FRC’s thinking on how a disclosure framework might apply in a broader context - particularly considering placement criteria, which in the FRC’s view, are an integral part of a disclosure framework.  In doing so, the paper focuses on 'financial reporting' as a subset of overall corporate reporting and sees placement criteria as providing a structure for the financial report so that disclosures are organised in a way that is more informative to the reader and can be consistently applied.

The paper reiterates the 'disclosure problem', which it describes in terms of both quantity and quality issues, which result in disclosures that are "more about compliance than communication".  The paper sees a disclosure framework as a coherent framework that draws together all the various strands of financial reporting that relate to disclosures, within which standard setters and other regulators can set disclosure requirements and preparers and auditors can apply them.

The paper sets out the following benefits of such a disclosure framework:

• Ensuring that regulators only add disclosures to financial reports where those disclosures meet the objective of financial reporting
• More consistent setting of disclosure requirements across standards
• A reduction in the burden of disclosures arising from setting proportionate disclosure requirements
• The elimination of duplicate information within financial reports
• Better organisation of disclosures, which will make financial reports easier to navigate, as information fulfilling set objectives will be positioned within the same section of a financial report
• Empowering preparers to apply materiality more robustly to disclosures
• Elimination of boilerplate disclosures.

The paper also provides insights into how to reduce the disclosure burden through the application of the concepts of proportionality and materiality, and develops some principles for the communication of disclosures.

Recommendations for the IASB

The paper outlines what the FRC believes the IASB should do to contribute to the development of a disclosure framework, including setting the principles as part of its conceptual framework project.  For this purpose, the paper recommends the IASB should:

• Define the boundaries of financial reporting for their purposes
• Develop placement criteria for establishing where information should be disclosed
• Develop a clear objective for disclosure, as well as a distinct objective for presentation.

In addition, there are other steps that the FRC believes the IASB can take to enable preparers and others to critically assess the disclosures they should provide within financial reports. The paper suggests the IASB should:

1. Engage with users at an early stage in the development of a disclosure framework
2. Provide guidance on what materiality means from a disclosure perspective
3. Reduce and define the terms used within IFRSs, e.g. significant, key, critical, and then use the defined terms consistently
4. Provide overarching principles for disclosures and present these within one standard
5. Update IAS 1 so that presentational and disclosure aspects are clearly separated
6. Make it clear that measures not defined within IFRSs (e.g. net debt) and adjusted measures (e.g. EBITDA) can be disclosed within the notes to the financial statements (as a type of disaggregation) as long as these measures are defined, reconciled back to IFRS figures, include comparative information and are consistently calculated and presented
7. Where disclosure requirements within individual standards are not mandatory, these should be moved into implementation guidance that is not part of the standard.

The FRC is requesting comments on the Discussion Paper by 31 January 2013.  Click for press release (link to FRC website).