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IASB chairman announces 10-point plan in relation to disclosures

  • Speech — dark green Image

Jun 27, 2013

At the IFRS Foundation conference held in Amsterdam, IASB Chairman Hans Hoogervorst spoke about the adoption of IFRSs around the world, the current work program of the IASB, and necessary changes in relation to financial disclosures.


Global standards

On global accounting standards, Mr. Hoogervorst first pointed at the recently posted collection of 66 "jurisdiction profiles" detailing information about the adoption of IFRSs and the IFRS for SMEs in all the G20 jurisdictions and 46 other jurisdictions. He reiterated many of the conclusions he had already drawn in his Hong Kong speech "Are we there yet?" He also mentioned the recent developments in Japan where the Business Accounting Council (BAC) in its final report recommended a greater use of IFRSs in Japan as a positive signal.


Current work program

Regarding the current work program of the IASB, Mr. Hoogervorst shared his thoughts on impairment, insurance accounting, and the conceptual framework. 

He pointed at Exposure Draft ED/2013/3, Financial Instruments: Expected Credit Losses, published on March 7, 2013. He believes that the proposed new model will faithfully reflect the economics of the underlying transactions. However, he also admitted that it was unfortunate that the FASB has developed another variant of an expected loss approach but expressed hope that convergence or at least more convergence was still possible.

On insurance contract accounting, he mentioned Exposure Draft ED/2013/7, Insurance Contracts, published on June 20, 2013. At present, the industry operates under a patchwork quilt of accounting practices, some of which date back to the days before IFRSs were introduced and that were, in effect, stitched together and grandfathered when IFRS 4 was introduced as an interim measure. Mr. Hoogervorst called this "unacceptable" and concluded: "Fortunately, the end to this unacceptable situation is in sight."

Lastly, Mr. Hoogervorst spoke about the conceptual framework project, on which a discussion paper is scheduled to be released in July 2013. It will address those areas in the Framework that the IASB thinks are critical and needs attention. As the project is no longer a phase-by-phase project, the DP will present all chapters. However, Mr. Hoogervorst warned that the discussion paper will not "give a definitive answer to all accounting problems."


Financial disclosures

The final topic of Mr. Hoogervorst's speech was disclosures. He spoke of the necessity to "break the boilerplate" because there was a risk that annual reports would become simply compliance documents rather than instruments of communication. The IASB itself has decided to give a good example: the size of the IFRS Foundation Annual Report 2012 was reduced by 25 percent while the amount of useful information was increased and the report was made easier to read.

Nevertheless, as already announced in the feedback statement on disclosure that was released in May 2013, the IASB will react to the perceived disclosure problem with certain measures. Mr. Hoogervorst set out a 10-point plan to deliver tangible improvements to disclosures in financial reporting:

  1. Clarify in IAS 1 that the materiality principle does not only mean that material items should be included, but also that it can be better to exclude non-material disclosures;
  2. Clarify that a materiality assessment applies to the whole of the financial statements, including the notes;
  3. Clarify that if a Standard is relevant to the financial statements of an entity, it does not automatically follow that every disclosure requirement in that Standard will provide material information;
  4. Remove language from IAS 1 that has been interpreted as prescribing the order of the notes to the financial statements;
  5. Make sure that IAS1 gives companies flexibility about where they disclose accounting policies in the financial statements;
  6. Consider adding a net-debt reconciliation requirement;
  7. Look into the creation of either general application guidance or educational material on materiality;
  8. Seek to use less prescriptive wordings for disclosure requirements when developing new standards;
  9. Begin a research project to undertake a more fundamental review of IAS 1, IAS 7 and IAS 8 with the goal to replace those standards, in essence creating a new disclosure framework;
  10. Undertake a general review of disclosure requirements in existing Standards.

These measures, Mr. Hoogervorst said, should "remove most excuses for boilerplate disclosures. They will certainly help to ignite the much-needed change in mind set of preparers, auditors and regulators that is so sorely needed."

The full text of the speech is available on the IASB's Web site. A video recording of the speech is also available.

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