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Danish regulator suggests disclosure overload can be dealt with within existing IFRSs

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11 Dec 2013

The Danish regulator overseeing non-financial entities (Erhvervsstyrelsen or Danish Business Authority (DBA)) has sent out its traditional communication covering relevant topics for consideration at year-end - the so-called 'Christmas letter'. This year, the DBA urges companies to actively look for any immaterial information/disclosure in the financial statements that could be omitted from them.

The DBA states:

We believe that it will be of great advantage if companies not only focus on fulfilling the law's formal and specific rules but also focus on the presentation of the accounts. The financial statements will have to live up to the demands of the law of course. And yet practice has shown that it often will be possible - within the legal framework - to improve the presentation of the accounts considerably.

To achieve this, the DBA suggests certain areas of focus including avoidance of repetitive information and of generic information as well as more marketing related presentation. The recommendations are:

  • Avoid repetitions - not only do they increase the length of the financial statements, there is also the significant risk that the descriptions are not the same in the different places.
  • Avoid generic statements - although model financial statements are available and offer excellent inspiration, they should not be used uncritically, as they are aimed at an average company which individual companies never are.
  • Leave out immaterial information - IFRSs contain many detailed disclosure requirements but a company should assess which information is immaterial and can (and should) therefore be left out.
  • Limit more marketing related presentation - leave out information that is more akin to marketing for the company (information that is not required by law and not strictly necessary for users); a good place for this kind of information would be the company's home page or other communications, not the financial statements.

In the current debate around the disclosure overload this is an interesting move of the DBA. In the past, enforcement decisions had shown that the DBA (like other regulators in Europe) focused quite extensively on every disclosure requirement in IFRS being included; now it seems the DBA is among the first regulators to act on the main message that came out of the IASB's disclosure discussion forum in January: 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 DBA communication is only available in the Danish language and can be downloaded from the DBA website. The disclosure overload is only one of the topics touched on. The communication also reminds Danish companies of new requirements of the Danish Financial Statements Act, ESMA enforcement priorities for 2012 and 2013 and selected topics and experiences from the DBA's review of financial statements as part of the enforcement in Denmark.

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