IASB Outlines Steps to Improve Disclosures in Financial Statements

The International Accounting Standards Board has published a Discussion Paper that suggests principles to make disclosures in financial statements more effective.

The Discussion Paper Disclosure Initiative—Principles of Disclosure seeks public feedback on disclosure issues the Board has identified through outreach as well as its preliminary proposals to resolve these issues.

Ultimately, it is expected that the Discussion Paper could lead to amendments to IAS 1, the Standard covering general disclosure requirements, or the development of a new general disclosure Standard.

Stakeholders have said that financial statements sometimes include too little relevant information, too much irrelevant information and information disclosed ineffectively.

The Board believes that the development of clear principles governing what, how and where information should be disclosed in the financial statements will improve the information provided to users of financial statements. It will do so by helping companies communicate their disclosures more effectively and by assisting the Board in improving disclosure requirements in IFRS Standards.

Some specific suggestions in the Discussion Paper include:

  • Seven principles of effective communication, which could be included in a general disclosure standard or described in non-mandatory guidance;
  • Possible approaches to improve disclosure objectives and requirements in IFRS Standards; and
  • Principles of fair presentation and disclosure of performance measures and non-IFRS information in financial statements, to ensure that such information is not misleading.

“Investors and companies have told us that there is room for improvement in the disclosures in the financial statements,” says Hans Hoogervorst, Chairman of the International Accounting Standards Board.

“Agreeing which principles underpin effective disclosures is a vital step towards encouraging the behavioral changes required to make financial statements better communication tools in the future.

The Discussion Paper is the latest installment of the Board’s Disclosure Initiative, which was established in 2013 with a ten-point plan to deliver tangible improvements to disclosures in financial reporting.

The Principles of Disclosure project complements a number of other projects already taken by the Board, including amendments to IAS 1 Presentation of Financial Information and IAS 7 Statement of Cash Flows, and the development of guidance to help companies make materiality judgements when preparing their financial statements.

The Disclosure Initiative is an important part of the Board’s central theme, Better Communication in Financial Reporting.

The consultation on the Discussion Paper is open for comments until 2 October 2017.