FRC recommendations to improve disclosures in annual reports
29 Oct, 2013
The Financial Reporting Council (FRC) has today called on both preparers and auditors to consider improving the quality of disclosures in annual reports. A number of recommendations, in the form of ’calls to action’, have been put forward by the FRC based on the feedback received on its discussion paper “Thinking about disclosures in a broader context: A road map for a disclosure framework”.
The discussion paper focused on enhancing disclosure in financial reporting. The paper reiterated the 'disclosure problem', which it described in terms of both quantity and quality issues, which result in disclosures that are "more about compliance than communication". The paper viewed 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.
Based upon the feedback received, to improve the quality of disclosures in annual reports, the FRC recommends that:
Disclosures should focus on communication of relevant information to investors.
Core information that is relevant for investors is separated from supplementary information that only meets the needs of a wider stakeholder group.
Placement of information outside the annual report may be more appropriate for supplementary information, where the law permits this.
Immaterial information should be excluded.
Boilerplate language should be avoided with a focus on entity specific disclosures.
Related information is linked to tell the story of a company.
As well as the above ‘calls to action’ the FRC has also issued some recommendations to the International Accounting standards Board (IASB) for it to consider during their disclosure framework project, some of which were outlined in the “Thinking about disclosures in a broader context: A road map for a disclosure framework” discussion paper. The IASB chairman, Hans Hoogervorst, has recognised the need to “break the boilerplate” and in June 2013, announced a ten point plan to deliver tangible improvements to disclosures in financial reporting.
In addition to those points raised by Hans Hoogervorst, the FRC recommends that the IASB:
Develops a disclosure framework that considers disclosures in the financial report as a whole.
Defines the boundaries of financial reporting.
Develops placement criteria.
Reduces and defines the “magnitude” terms used in IFRSs, such as significant, key and critical.
Click for the press release on the FRC website.
