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FRC issues comment letter on the IASB's proposed amendments to IAS 1 as a result of the Disclosure initiative

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08 Jul 2014

The Financial Reporting Council (FRC) has issued its comment letter on the International Accounting Standard Board's (IASB's) Exposure Draft ED/2014/1 ‘Disclosure Initiative (Proposed amendments to IAS 1)’ which was published in March 2014.

The amendments result from the IASB’s ‘Disclosure Initiative’ project which comprises several smaller projects to improve presentation and disclosure requirements in existing standards.  The amendments aim at clarifying IAS 1 'Presentation of financial statements' to address perceived impediments to preparers exercising their judgment in presenting their financial reports.  The ED proposes amendments to the following areas of IAS 1:

  • Materiality and aggregation;
  • Presentation in the statement of financial position and statement of profit or loss and other comprehensive income;
  • Notes structure; and
  • Disclosure of accounting policies.

The amendments also include proposals relating to the presentation of items of Other Comprehensive Income (OCI) arising from equity-accounted investments.

The FRC are of the view that the proposed amendments to IAS 1 “provide useful clarification on the application of materiality to IFRS financial statements (including the notes), the flexibility available in structuring disclosures and the presentation of information in the primary financial statements”. 

The key comments of the FRC are as follows:

  • The FRC welcome the proposals that materiality considerations should apply when determining the level of disclosure that is appropriate.  However the FRC comments that certain changes are required to the proposed amendments to “make it clearer that the assessment of the materiality of information should determine which information is presented and disclosed”.  The FRC adds that the IASB “should ensure the language in IAS 1 consistently encourages entities to omit disclosures that are not material (either individually or in aggregate) as “disclosure of immaterial information can impair understandability and obscure useful information”.
  • The definitions of ‘present’ and ‘disclose’ defined in paragraph BC7 of the ED are “problematic”.  The FRC “urge the IASB to reconsider these definitions as clarity in this area is critical to the effective communication of information, the progress of the broader ‘Disclosure Initiative’ project and to the development of the Conceptual Framework”.
  • That paragraph 114 of IAS 1 should be deleted as this “undermines” the aim of the proposed amendments to IAS 1 of allowing flexibility in determining an appropriate structure and order for the notes.

A number of drafting changes are also suggested in relation to the proposals for presentation in the statement of financial position and statement of profit or loss and other comprehensive income and the proposals relating to the presentation of items of Other Comprehensive Income (OCI) arising from equity-accounted investments.

The full comment letter can be accessed from the FRC website. 

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