In my last article, I discussed how the International Accounting Standards Board (IASB) aims to significantly improve financial statement disclosures and to provide the preparers with clearer guidance on applying the requirements set out in accounting standards. This article will go into the concerns raised in reaction to the IASB's March 2017 discussion paper on disclosures.

The seven principles of effective communication

Communication between financial statement preparer and user must indeed be made more effective. To this end, the IASB's discussion paper introduced seven key principles to help entities in their communication to stakeholders. The seven principles are:

  • information that is more entity-specific
  • simpler and more direct descriptions and sentence structures
  • better organised disclosures highlighting important matters
  • information better linked within the financial statements
  • better format for the type of information provided
  • no duplications
  • enhanced comparability among companies and across reporting periods

Most respondents generally agreed with these seven principles in the comment letter feedback. Views were mixed, however, on whether they should be mandatory or not—though a majority expressed a preference for non-mandatory.


The IASB received the following feedback (summarised) on the discussion paper:

  • Preparers are concerned about the amount and content of disclosure requirements and particularly about the application of the materiality judgement.
  • Users find a lack of relevant disclosures in the financial statements. More specifically, they find that:

    • preparers comply with IFRS requirements due to the expectations of regulators and auditors, rather than doing so as an opportunity to convey useful information
    • materiality judgement is not properly applied, as a result of possible compliance risk with the standard requirements
    • IFRS standards are not clearly drafted and include extensive disclosure requirements which leads to a "checklist approach"
  • All stakeholders believe that the disclosure requirement in the standards is contributing to the disclosure problem, i.e. prescriptive language like "shall disclose" or "as a minimum", lack of clear and specific disclosure objectives, and inconsistencies in formulating requirements.

Thus, the perception of the problem differs quite a bit. The proposed solutions are the following:

  • Preparers suggest that the burden of disclosure requirements be reduced, and the "checklist approach" be mitigated, so as to free up time to apply the materiality judgement and to communicate effectively.
  • Users request a change in behaviour by several stakeholders, to grab the issue at its roots; the right behavioural change would encourage preparers to apply judgement more properly.

In the discussion paper, the IASB also suggested developing guidance for itself, to be used when developing disclosure and drafting disclosure requirements for new and amended standards. This idea was strongly supported by respondents. More information on this topic coming soon!

In all, it now really seems that the initiative is developing nicely, and that new and improved financial reporting may be just a few years away... but only if everyone—preparer and stakeholder alike—updates their way of thinking away from a checklist approach.

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