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IASB releases Feedback Statement on disclosure

  • IASB (International Accounting Standards Board) Image

May 28, 2013

The IASB has published a Feedback Statement summarizing the discussions at a forum hosted by the IASB on financial information disclosure and outlining its response to the matters raised. The IASB wishes to act as a catalyst for collective action by preparers, regulators, and the accounting profession as well as the IASB to address ongoing concerns about the quality and quantity of financial reporting disclosure. In its response, the IASB has indicated it will consider a number of initiatives, including narrow scope amendments to IAS 1, "Presentation of Financial Statements," seeking to develop educational material on materiality, and considering a project as part of its research agenda to address broader challenges associated with disclosure.

The disclosure discussion forum was held in London on January 28, 2013, and sought to foster dialogue among preparers, auditors, regulators, users of financial statements, and standard setters. The key objective of the forum was to get a clearer picture of the "disclosure problem" and its causes. The forum involved around 120 people, mainly from the United Kingdom, but also included representatives from wider Europe, the United States, and Asia-Oceania.

The Feedback Statement contains a summary of the discussions, the IASB's response, a summary of work already undertaken on disclosure, and the outcomes of the IASB's survey on disclosure launched in December 2012. The IASB states that the discussion forum makes it clear that users, preparers, standard setters, auditors, and regulators all contribute to the perceived problems about disclosure and that each of these parties can contribute to improvements.

The Feedback Statement notes some of the steps that the IASB will be asked to consider in the near and medium term to take the lead in improving disclosure, relating to materiality, perceptions existing standards to prevent the exercise of judgement, and a more general review of disclosure requirements.

In this regard, the key responses the IASB intends to consider are as follows:

Short term

  • Narrow scope amendments to IAS 1 —this will be considered by the IASB in the second half of 2013 and will look at proposals such as:
    • Adding an explanation in IAS 1 similar to more recent standards explaining that too much detail can obscure useful information, i.e., why materiality should "filter out entity-specific information that is not relevant to the users of the financial statements of a particular entity."
    • Clarifying that materiality applies to whole financial statements and that information that is not material need not be presented in the primary financial statements or disclosed in the notes.
    • Clarifying that some disclosures specified in standards are simply not important enough to justify separate disclosure for a particular entity.
    • Making it clear that preparers should exercise judgement in presenting their financial reports.
    • Removing the perception of a "normal order of presentation" of financial statements, making it easier for entities to provide more contextual and holistic information.
    • Reducing restrictions on how accounting policies should be presented, allowing important accounting policies to be given greater prominence in financial reports.
    • Adding additional explanations with examples of how IAS 1 requirements are designed to shape financial statements instead of specifying precise terms that must be used, including whether subtotals of IFRS numbers such as before interest
      and tax and earnings before interest, tax, depreciation
      and amortization should be acknowledged in IAS 1).
    • Adding a requirement that entities disclose and explain their net debt reconciliation.
  • Educational material on materiality — the IASB plans to start a project on materiality with a view to creating either general application guidance or education material. Such a project will look at how materiality is applied in practice and whether more guidance should be added to IAS 1. This project will be started in the second half of 2013.
  • Disclosure requirements in new exposure drafts — the IASB intends to draft future exposure drafts using less prescriptive language and having clear disclosure objectives, while avoiding requirements that would affect the auditability of the standards. The IASB also considers that it has already "made considerable progress in this regard in its recent Standards."

Medium term

  • Research project on disclosure — the IASB will be asked to commence a research project reviewing IAS 1, IAS 7, and IAS 8, with the goal of replacing all of those standards and "in essence" creating a disclosure framework. This work may build on the IASB's previous work on the financial statement presentation project (suspended in 2010), and consider how this project might be developed in parallel with the work on the Conceptual Framework project.
  • Review of existing disclosure requirements — a systematic review of all existing standards may be undertaken in light of the revised Conceptual Framework and any work arising from the research project on disclosure. The IASB has signalled that it intends to consider whether there are ways to accelerate this standards-level review of general disclosure requirements, notwithstanding a preference to complete its work on disclosure principles as part of its Conceptual Framework project (although any disclosure related principles developed will not have a direct effect on current disclosure requirements). The review is expected to be undertaken over the next two years.

The Feedback Statement also indicates an intention to develop additional outreach events and briefly discusses broader issues such as technology, the impact of disclosures on smaller listed entities, country-by-country reporting, and integrated reporting.

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