Disclosure initiative: Principles of disclosures

Date recorded:

Disclosure Initiative: Principles of Disclosure [Agenda paper 11]


The IASB’s Disclosure Initiative is focused on identifying ways to ensure that financial statements provide information that is relevant to investors that is communicated effectively. The Board thinks that the main problem is that preparers have difficulty in applying judgment when deciding what information to include in, or exclude from, the financial statements and the most effective way to organise and communicate it. The focus of this research project is to respond to these concerns by identifying and better understanding disclosure issues, and developing new or clarifying existing disclosure principles to address those issues. This project is likely to result either in amendments to IAS 1 or in the creation of a new general disclosure standard to build on and replace the parts of IAS 1 that cover disclosures in the financial statements. The Board will use this project to help it with a standards-level review of disclosures requirements and to help it when developing disclosure requirements in new and amended Standards.

In March 2017 the IASB published a Discussion Paper Disclosure Initiative—Principles of Disclosure. In December 2017 the Board began considering the feedback received, but it has not yet made any decisions.

The objective of this meeting is for the Board to make decisions about the next steps in the project.

Project next steps—prioritisation of Discussion Paper topics [Agenda paper 11A]

Staff analysis

Respondents to the DP provided a clear message that the project lacked focus, and that the DP set out a series of piecemeal issues rather than a coherent vision as to how the Board could contribute to addressing disclosure problems.

The staff have identified topics that they think are directly related to improving disclosures in financial statements—developing guidance for the Board to use, including the NZASB staff’s approach to drafting disclosure requirements; principles of effective communication; centralised disclosure objectives; a standards-level review of disclosure; and the development of educational material. These topics are discussed in more depth, with some recommendations, in Agenda Paper 11B.

The staff have also identified topics that they think are more relevant to the Primary Financial Statements project, topics that are unlikely to be contributing to the disclosure problems, those that can be dealt with separately from the main disclosure problem and topics that the DP did not address, but for which the Board received significant feedback.

Additional topics

There are three topics that were not included in the DP that the staff think require additional work.

The staff think it would be helpful if the Board developed a high-level summary explaining how the Better Communication in Financial Reporting projects interact, what makes each project distinct and the boundaries between them.

The staff agree with the feedback provided by respondents about the potential effects that the increasing use of technology might have on the communication of financial information. They note that this area is likely to be relevant to more areas of the Board’s work than just the Principles of Disclosure project and that more analysis is required to enable the Board to make an informed decision about whether, and how, the potential effect of technology should be included within the scope of this project. The staff plan to liaise with other project teams about this area, including the taxonomy team. They also note that a team is being formed to consider the potential implications of technology on financial reporting and that a broader strategy is being developed in this area. Any activity the Board undertakes in relation to how technology and digital reporting should affect the Principles of Disclosure project should be coordinated with other related activities. The staff plan to discuss the feedback received with the Board’s IFRS Taxonomy Consultative Group at its April 2018 meeting.

The staff agree with respondents who emphasised the importance of materiality judgement to the quality of disclosure. The staff note that the IASB has published several documents that could affect how materiality judgements are applied, but that it will take some time to assess the effect they are having. The staff are therefore suggesting that the Board wait until it has more information about the practical effect these documents may have had. They note that by Q2 2019, many companies will have been through two complete reporting cycles since the issue of these documents and that it would be better to wait until then before further analysis is undertaken. The staff also noted that they are planning to bring comment letter feedback on the proposed change to the definition of material to the Board at its April 2018 meeting and make recommendations about next steps in May 2018.

Staff recommendations

The staff are recommending that the Board:

  1. Consider as part of the Primary Financial Statements Project:
    • roles of the primary financial statements and the notes;
    • presentation of EBIT and EBITDA;
    • presentation of unusual or infrequently occurring items; and
    • fair presentation of performance measures.
  2. Not pursue any further:
    • developing non-mandatory guidance about the use of formatting in financial statements;
    • developing non-mandatory guidance about the location of accounting policy disclosures; or
    • relocating existing disclosure objectives and requirements in IFRS Standards.
  3. Consider the feedback received on the use of these terms ‘present’ and ‘disclose’ when, or if, drafting guidance is developed for the Board.
  4. Undertake additional analysis on:
    • location of information (inside or outside the financial statements), by undertaking limited outreach to get a better understanding of the risks and costs particularly related to the interaction with local laws and regulations; and
    • which accounting policies should be disclosed, by analysing the potential effect on accounting policy disclosures of the recently issued Board publications relating to the application of materiality and undertaking a high-level assessment of approaches the Board could take to developing guidance for entities about which accounting policies to disclose.
  5. Develop a high-level summary explaining how the Better Communication in Financial Reporting projects interact, what makes each project distinct and the boundaries between them.
  6. Undertake further work to assess the effects of technology and digital reporting on the Principles of Disclosure project.
  7. Consider whether to perform any further activity relating to materiality when it has more information about the practical effect of recent Board publications about the application of materiality.


The Vice-Chair opened by emphasising that the Board would need to understand the role of the notes to be able to develop disclosure objectives. She also noted that many people had been critical that the Discussion Paper (DP) had a series of topics that the Board had not connected in a cohesive way. While that criticism was valid, she emphasised that the Board has been aware of those concerns for some time and the decisions today should not be taken to imply that the Board has only just become aware of these concerns.

There was little discussion on recommendations 1, 3 and 7.

On recommendation 2, in response to questions from two Board members the staff clarified that the principles of disclosure project would not develop any general guidance (mandatory or non-mandatory) about the use of formatting in financial statements. This does not prevent the Board considering specific formatting requirements when it develops or amends a particular Standard.

On recommendation 4, a Board member thought that the project could help minimise redundancy and emphasised the importance of talking to the IAASB. One member thought the additional outreach should go beyond just respondents to the DP, and the staff clarified that their outreach would be more extensive than was implied by the paper.

On recommendation 5, one Board member cautioned about spending too much effort creating a summary because it is not actually creating anything that helps to address the disclosure problem. Another member asked if that summary could include an explanation of how IAS 1 and IAS 7 fit into the project, as well as the work on revising the management commentary practice statement.

On recommendation 6, one Board member said that the financial statements are typically used as a reference document rather than being read through like a novel. The member liked the idea of a standard index to help people find data, particularly as financial statements get longer. One member said that digital reporting is likely to have an important role, but not as a solution to the disclosure problem. Another member questioned what could be achieved between now and June. The staff emphasised that the important thing is to ensure that technology does not slip between the cracks, and the recommendation is designed to ensure that information gathering continues.

The Board unanimously approved all of the recommendations.

Project next steps—the disclosure problem [Agenda paper 11B]

Staff analysis

Guidance for the Board to use when developing and drafting disclosure requirements

The staff think the Board should develop guidance to help it when it develops and drafts disclosure requirements because the way the requirements are expressed in a Standard could help other stakeholders improve the effectiveness of disclosures for the primary users of financial statements. That guidance could cover the extent or nature of investor outreach the Board should undertake; whether the disclosure requirements should be developed at the same time as the related recognition and measurement requirements; integration with the development of the IFRS taxonomy; the appropriate balance of disclosure objectives, principles and prescriptive requirements, including considering whether to develop further one or more elements of the NZASB staff’s approach as described in the Discussion Paper; whether to use prescriptive language such as “shall” or “as a minimum”; whether individual disclosure requirements, or sets of disclosure requirements should refer to materiality considerations; and how to use the terms ‘present’ and ‘disclose’.  

The staff think the Board should not develop the guidelines through a formal exposure process, as is the case for the Due Process Hand Book, at least initially. The staff think it is important that the Board get public input, but that this can be done by obtaining formal feedback when the guidance has been used by the Board. This would allow the Board to use the guidance sooner and develop and improve it on the basis of its experience and the feedback it receives.

The staff think they can develop this guidance for use in the second half of 2018.

Principles of effective communication

The DP considered whether the Board should develop principles of effective communication that entities should apply when preparing financial statements, to help entities communicate information more effectively in the financial statements.

Principles of effective communication could help entities to apply better judgement about what to disclose, and how best to communicate the information disclosed and encourage entities to change how they approach their disclosures. However, some respondents described the principles of effective communication in the DP as ‘common sense’, and that such guidance is already available. The staff also assert that the principles might be too generic to effectively enforce and that it is unreasonable to hold entities accountable for achieving comparability with other entities. They conclude that the Board should not develop principles of effective communication.

Centralised disclosure objectives

The DP considered whether the Board should develop a central set of centralised disclosure objectives, but feedback indicates that it was not clear what the Board had in mind. The staff think centralised disclosure objectives could help stakeholders understand the disclosure requirements in the standards. But they also think it might be more difficult to develop centralised disclosure objectives than to work on some of the other activities being discussed in this session. The staff are also concerned that having centralised disclosure objectives could be perceived as adding another layer of requirements on top of the existing requirements, adding to the compliance burden. They conclude that the Board should not develop centralised disclosure objectives.

Standards-level review

Although the DP did not discuss a Standards-level review of disclosure requirements, many respondents thought that standards level activity would be the most effective way that the Board could contribute to addressing the disclosure problem.

A review of current standards might lead to the removal of excessive or redundant disclosure requirements and prescriptive language; the linking of specific disclosure requirements to materiality considerations; incorporation of overarching disclosure principles or objectives into individual Standards; development of specific disclosure objectives for each individual Standard; and disclosure requirements across the standards being more consistent and coherent.

The staff think such a review would be responsive to some of the feedback received from almost all respondents to the Discussion Paper. However, they are concerned that there could be a gap between the expectations of some of those asking for Standards-level review and the likely outcome of such a review. It is clear that some preparers expect the outcome of any standards-level review would be a reduction in disclosure requirements. On the other hand, investors are more concerned with what is missing rather than with having too much information. It will be important to be clear about the objective of such a review in order to manage stakeholder expectations. The staff think that the objective would not relate directly to the volume of disclosure requirements. Instead, t think the overarching objective of any standards-level review would be to improve disclosure requirements so that applying them provides more useful information to the primary users of financial statements.

The staff think the Board should undertake a targeted Standards-level review once it has developed its own guidance, as described above. It should target one or two standards and use the guidance to improve the disclosure requirements in the selected standard(s). The objective will not be to change the volume of disclosure requirements, although this may be a consequence. The staff anticipate that they would involve stakeholders in this process and would aim to perform this work during the second half of this year. The Board would develop an Exposure Draft to solicit comments on the specific proposals and on the Board’s guidelines.

The staff considered whether the Board should undertake a more comprehensive review. Although many respondents asked for a comprehensive review, the staff are concerned about the length of time this would take. There is also a risk that the Board would undertake a comprehensive review only to find that, because they had not tested their reforms on a smaller set of standards, a significant amount of time is invested in proposals that are not well received. A more targeted review would allow the Board to test its guidance and seek feedback much earlier. The Board would not be prevented from undertaking a more comprehensive review at a later date.

Educational material

Some respondents to the DP thought that educational material developed by the Board could help stakeholders to understand and apply disclosure requirements. The staff see merit in developing guidance, but note that other bodies are already doing so. They also think that the only stakeholders exposed to the Board’s educational materials are those that are actively following the Board’s work. The staff think this subset of stakeholders may be similar to the subset of stakeholders that are already using judgement when applying IFRS Standard disclosure requirements today. Although they see benefits for some stakeholders, the Board should focus on those elements of the disclosure problem that only the Board can address—in other words, they think the Board’s initial focus should be on standard-setting activity and not the development of educational material.

Staff recommendations

The staff are recommending that the Board:

  • a) develop guidance to help it when it develops and drafts disclosure requirements;
  • b) not develop principles of effective communication;
  • c) not develop centralised disclosure objectives;
  • d) identify one or two Standards on which to apply and test the Board’s guidance with a view to proposing changes to those Standards; and
  • e) not develop educational material.


The Vice-Chair said that the issue of enforceability if more objectives-based requirements are developed will be very important and needs to be considered as the work progresses.

The Vice-Chair also said that the positive feedback and experience with the Materiality Practice Statement makes her wonder if similar benefits could be created by thinking about communication guidance in a similar way and the recommendation not to develop guidance on effective communication caused her to pause. Other Board members indicated that they had similar reservations about doing nothing. Several Board members emphasised that incorporating effective communication principles in a Standard was not appropriate because it would not be enforceable. Any guidance would need to be outside of the Standards.

Some members thought that picking a test Standard for developing the Board’s drafting guide will be challenging, and it should not be a new Standard that is only just being applied. It should be one that addresses known problems. One member thought the Board should pick a Standard first, analyse what is wrong and use that to develop the guide for the Board (i.e. rather than creating a guide first). The staff responded by saying that it was likely to be an iterative process.

One member thought it would make a positive difference if the Board developed disclosure requirements as the recognition and measurement requirements were developed, and reviewed them holistically at the end, rather than waiting to the end of the project to look at disclosure.

One member thought the guidance for the Board should include guidance on assessing costs and benefits (and another member agreed). He also thought that how “at a minimum” and “shall” are expected to be applied should be explained so that the words do not need to be changed in every Standard.

The Board unanimously approved all of the recommendations. In summing up, the staff emphasised that the decisions will be expressed positively about what actions the Board was taking. This included making it clear that the decisions did not mean that the door is closed on thinking further about principles of effective communication.

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