Disclosure Initiative

Date recorded:

Guidance for the Board Overview (Agenda Paper 11A)


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 judgement when deciding what information to include in, or exclude from, the financial statements and the most effective way to organise and communicate it.

In March 2017 the Board published the Disclosure Initiative—Principles of Disclosure Discussion Paper (POD DP). The Discussion Paper identified three factors that contribute to the disclosure problem:

  • Not enough relevant information
  • Irrelevant information
  • Ineffective communication of the information provided

Respondents to the POD DP were concerned about:

  • Lack of specific disclosure objectives in Standards
  • Inconsistent or piecemeal drafting of disclosure requirements
  • Volume of prescriptive requirements

The Board decided, as a first step, to develop guidance for itself to use when developing and drafting disclosure requirements.

The staff prepared two Agenda Papers which summarise the proposed approach to developing guidance for the Board to use when developing and drafting disclosure objectives and requirements and recommendations about how the Board will use disclosure objectives in future.

Staff analysis

This paper sets out the three steps the staff will take in developing its analysis and recommendations:

  • Step 1: The Board first needs to decide what it is aiming for in terms of disclosure objectives.  For example, the way the Board balances disclosure objectives and prescriptive requirements might affect the focus of stakeholder engagement. (See Agenda Paper 11B for discussion at this meeting).
  • Step 2: At the June meeting the Board will consider how it can ensure that the content of disclosure objectives and requirements is effective. These considerations will include how the Board will get the information it needs to develop effective objectives, timing of development and how to better integrate development in to the standard-setting process.
  • Step 3: At the July meeting the Board will consider how it can ensure that the way requirements are drafted effectively communicates the intent. This will involve consideration of the language used in disclosure requirements, how to avoid cross-standard issues and how to effectively communicate disclosure requirements.

Staff recommendations

The paper does not contain any questions for the Board.

Board discussion

One Board member asked how best to understand what information is critical for user analysis and how precise information needs to be, they asked for further guidance to support outreach. Staff responded that this would be provided in the June 2018 Board meeting.  

Guidance for the Board — Disclosure objectives (Agenda Paper 11B)

Staff analysis

To improve the effectiveness of disclosure requirements in IFRS Standards, a single framework for the use of disclosure objectives should be applied. This will help the Board to develop more consistent disclosure requirements across the Standards, and use objectives in a way that will help entities to apply judgement to their disclosures.

Staff have performed an analysis of three alternative frameworks for the use of specific disclosure objectives in the Standards:

  • Prescriptive framework — This framework uses prescriptive requirements to define the minimum amount of disclosure required for material items or transactions. The staff think this approach would have less effect on the ‘checklist mentality’ compared to the other approaches because this approach is helpful in prompting entities to think about disclosing additional information, but it might be less effective in prompting them to apply materiality judgements to the prescriptive requirements. Consequently, the staff do not recommend that the Board adopt a prescriptive framework.
  • Objectives-based framework — Under this framework, all disclosure requirements developed by the Board in future would be based on complying with specific objectives rather than requiring particular items of information to be disclosed. The staff do not recommend that the Board adopt this framework because it may decrease comparability between entities and make disclosure requirements more difficult to enforce.
  • Hybrid framework — This framework combines objectives-based disclosure requirements with examples of specific information that an entity should consider disclosing in order to meet those objectives. Using this framework, all disclosure requirements are based on a specific objective. This approach is recommended because it is the most effective way the Board can use objectives to encourage the application of judgement to disclosure requirements, without unduly compromising comparability between entities.

Specific objectives are those that explain why the disclosure requirement is useful to users and what users will do with the information provided.

Staff considered high-level objectives in the Conceptual Framework and IAS 1 and those in specific IFRS Standards. Their view is that these objectives prompt preparers to consider whether the disclosures provided in their financial statements, in accordance with each individual IFRS Standard, are effective in meeting the overall objectives of general purpose financial reporting and general purpose financial statements.

Staff recommendations

Staff recommend that the Board adopt a hybrid framework for the development and drafting of disclosure objectives and requirements. Under this framework, they recommend that the Board:

  • Base all disclosure requirements on one or more specific disclosure objectives. These objectives should explain why the information is useful to the primary users of financial statements, and what primary users of financial statements are expected to do with the information.
  • Draft all disclosure requirements in a way that explicitly states the underlying objective(s) and clearly links each specific item of information included in disclosure requirements with the related objective(s).

The staff also recommended that high-level disclosure objectives in Standards continue to be used to support the more specific objectives.

Board discussion

The Vice-Chair opened by agreeing that the hybrid approach is the most appropriate to test based on feedback received around the lack of specificity in objectives. It was noted that this approach is similar to that used in IFRS 7 Financial Instruments: Disclosures for expected losses disclosures. The difference to the hybrid approach is that, in IFRS 7, the requirements are not explicitly linked back to objectives. The requirements are prescriptive disclosures as opposed to potential disclosures for consideration. It will be useful to review the disclosures in annual reports as IFRS 9 Financial Instruments is adopted to understand the success of these requirements.

The Vice-Chair also noted that preparers can find it challenging to apply the requirement to stand back and look at their disclosures to ensure objectives have been met. Additionally, in the current environment, they are not referring back to objectives to inform users which will require a behavioural change. Another concern was that the Board may state that a disclosure is useful for users and preparers may disagree leading to a debate on what is useful or not. A live example can be taken from the feedback on IFRS 13 Fair Value Measurement where users and the Board believe that sensitivity disclosures are useful but preparers disagree.

Several Board members supported the recommendations and agreed with testing the approach that the objective itself would become the disclosure requirement but were wary of the objectives not being sufficiently precise and so not being enforceable.

Some Board members thought that a long list of potential disclosures could be required if it is to encompass all possibilities that entities should consider. A suggestion was to include examples of what an entity would ordinarily do and allow for judgement from management about meeting the objective in a different way so that a complete list is not needed. However, there was concern that the judgement regarding the way information is disclosed could result in less comparability between entities.

One Board member suggested that the ‘hybrid’ approach should be renamed to the ‘enhanced objective’ approach to ensure that it is not confused as being 50/50 prescriptive and objectives based.  

One Board member noted that an explanation of why a disclosure is useful will not necessarily change behaviour but would be a good link between investors and accountants. They pointed out the need to consider the whole cycle when determining disclosure objectives.  

In relation to recommendation (b), one Board member clarified that the high level objectives are included to recognise that the Board cannot predict each and every transaction and preparers must consider if any other information is critical for users.  The high level objectives are ‘catch all’ which is an important concept to ensure material information is captured.

Some Board members argued that high level objectives may not be required in individual standards as they would be repetitive and could be included once, potentially in IAS 1. Additionally, it was not clear to one Board member how the high level objectives would add value and so an example was asked for.

Board decision

13 Board members voted in favour of recommendation (a), with one absent.

12 Board members voted in favour of recommendation (b).

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