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Disclosure initiative

Date recorded:

Targeted Standards-level Review of Disclosures (Agenda Paper 11)

Background

One of the threads in the Disclosure Initiative is a targeted Standards-level review of disclosure requirements. The Board has been developing guidance for it to use when developing and drafting disclosure requirements. The Board decided to test the guidance by applying it to the disclosure requirements in IAS 19 Employee Benefits and IFRS 13 Fair Value Measurement.

Since November 2018 staff and Board Members have been discussing IAS 19 and IFRS 13 with users of financial statements, and other stakeholders. The Board wants to gain an understanding of the primary objectives of users and the information that would most effectively meet those objectives. The Board is also considering potential costs and other consequences of disclosing that information. 

Staff summaries

At this meeting the staff provided the Board with a summary of the outreach undertaken and the feedback received. This has helped shape the approach the staff are planning to take in reviewing the disclosure requirements in IAS 19 and IFRS 13.

Agenda Paper 11A describes the outreach performed by Board Members and staff relating to the disclosure objectives and requirements of IAS 19 Employee Benefits and IFRS 13 Fair Value Measurement. It also summarises some of the lessons learned from outreach that might affect how the Board develops and drafts disclosure objectives and requirements in future. 

Feedback from stakeholders and input received from the IFRS Taxonomy team is summarised in papers 11B (employee benefits) and 11C (fair value measurement).

Employee benefits

The staff state that the overarching message from users they spoke to is that today’s employee benefit disclosures are often not effective in meeting their objectives and they would like different information about employee benefits. Some users said that some of the information they receive today is only understandable to sophisticated investors rather than a ‘normal’ primary user. Almost all users they spoke to focus on defined benefit plans. They consider other types of employee benefits ‘harmless’.

Some users said the extent to which they use pension disclosures depends on the financial environment, with a greater focus when the financial environment is unfavourable. There are jurisdictional differences. In some countries defined benefit plans are either small or declining and detailed disclosures about them are often not relevant to their analysis of entities. Additionally, in some countries regulators require similar information to that required by IAS 19, which reduces the costs of meeting the IFRS requirements.

Fair value measurement

User feedback is that they are broadly happy with the information they receive today.

Agenda Paper 11D summarises the staff’s planned approach to developing technical analysis and recommendations over the coming months. 

Staff recommendation

The staff are recommending that the Board explore different approaches to revising the disclosure requirements in IAS 19 and IFRS 13.

For IAS 19, the staff recommend that the Board explore whether new information about employee benefits would more effectively meet the needs of stakeholders than the information currently required by IAS 19. The Board would do this by developing specific disclosure objectives and using feedback from stakeholders to identify items of information that could effectively meet those objectives (refining the information by comparing them to existing IAS 19 disclosure requirements).

For IFRS 13, the staff recommend that the Board explore whether preparers would make more effective materiality judgements about fair value measurement disclosures if the Board developed specific disclosure objectives and linked those objectives to existing IFRS 13 disclosure requirements. Additionally, the Board should review any information required by IFRS 13 that it cannot link to a specific objective and any information identified by users as useful that is not currently required by IFRS 13. This Board should also consider feedback from preparers and other stakeholders about costs and other consequences.

Board Discussion

Outreach and overview

Board and staff members emphasised how much effort has gone into this. The real test of whether that effort was justified will be if improvements can be made to disclosure requirements. One Board member asked that the staff also get input from the Emerging Economies Group. 

Board members emphasised that the disclosure objectives are very important, and could bring change. They become the focal point of the requirements.

Some Board members commented on the statement in Agenda Paper 11A (paragraph 5) that entities would need to comply with the objectives but “could” disclose suggested information to meet those objectives. The staff said that they will be revisiting the language used, such as “required” disclosures once they have detailed examples to work with. The staff think that real examples will help the Board work out the appropriate language and will also help people see how disclosure requirements are linked to the objectives. The staff also said, in response to a question from a Board member, that the Accounting Standards Advisory Forum (ASAF) also thought having some examples would help them provide feedback. A Board member said that as well as a disclosure objective and possible information they also expected to have some specific disclosure requirements. They also asked if disclosure objectives and user objectives were intended to be used interchangeably. The staff responded that they are different and they will address this confusion in future papers.

Technical analysis

Several Board members said the analysis highlighted to them that it will be important to ensure that the IASB be clear about its role. There are many areas where users have legitimate information needs, but it is not always the role of IFRS financial statements to provide that information. An example given was the introduction of the expected credit loss model relative to the information needs of central banks. The IASB needs to have a good understanding of the boundaries of an IFRS general purpose financial report that reflect their purpose. In a similar vein, the analysis demonstrated that users are more interested in cash flows than recognised assets and liabilities. It raises a question whether the IASB should continue to provide information that helps investors estimate future cash flows or whether the IASB should give more direct information (such as estimates of those future cash flows). Several Board members came back to this issue later in the discussion emphasising that it is important to have this debate. One member commented that if additional information is part of the IASB’s remit it could significantly increase the volume of disclosures.

Another aspect of this is the role the IASB plays in addressing what appears to be tension between what users say they want versus what preparers say is appropriate (and cost effective) to disclose. One Board member said that the users are “our customers”, so we should listen to them. Otherwise IFRS financial statements could become irrelevant. However, it is not just about identifying what users want but understanding why they want that information and how they use it.

Several Board members mentioned the expectations that some constituents have that some disclosure requirements will be removed from Standards. The Board might also need to think about disclosures that are badly executed.

It was suggested that the analysis indicates that people are looking for help in assessing materiality in relation to disclosures. Perhaps examples could be added to the Materiality Practice Statement. One member thought the Board should also think about difficulties some users said they had connecting some data back to amounts recognised in the financial statements.

It was noted that there was little feedback on IAS 19 from the taxonomy team, compared to IFRS 13. This is because a common practice exercise had not been undertaken for IAS 19. The taxonomy team plans to analyse IAS 19 disclosures and will use the XBRL SEC filings of foreign filers.  

There was significantly less discussion about IFRS 13. One of the examples several Board members highlighted was the sensitivity analysis required by IFRS 13. It was not clear to some Board members what the objective of that disclosure requirement is or what users do with that information.

On the process the staff plan to take, Board members were generally supportive of the approach.

One Board member said the Board should step back and ask whether the package of proposed changes brings sufficient benefits to justify making the changes. In response a Board member said there could be value in seeing how a package of sound disclosure requirements can be improved with clearer objectives and presented in a different way. It could change the way the requirements are applied. One member suggested that the disclosure exercise might highlight that the accounting is wrong and would not want the Board developing new disclosure requirements for bad accounting.

Board Decisions

For IAS 19, the Board decided to explore whether new information about employee benefits would more effectively meet the needs of stakeholders than the information currently required by IAS 19. The Board will do this by developing specific disclosure objectives and using feedback from stakeholders to identify items of information that could effectively meet those objectives (refining the information by comparing them to existing IAS 19 disclosure requirements).

For IFRS 13, the Board decided to explore whether preparers would make more effective materiality judgements about fair value measurement disclosures if it developed specific disclosure objectives and linked those objectives to existing IFRS 13 disclosure requirements. Additionally, the Board decided to review any information required by IFRS 13 that it cannot link to a specific objective and any information identified by users as useful that is not currently required by IFRS 13. This Board will also consider feedback from preparers and other stakeholders about costs and other consequences.

The decisions were unanimous.

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