IASB Disclosure Project
The IASB has heard three main concerns from those who use and rely on information in financial statements prepared in accordance with IFRS Standards. These are:
1. Not enough relevant information
2. Too much irrelevant information
3. Ineffective communication of the information provided
These are collectively referred to as the “disclosure problem”.
In response it has instigated the “Disclosure Initiative”, a portfolio of separate projects aimed at addressing the disclosure problem arising from the application of specific standards.
A broad Discussion Paper was issued for consultation in 2017. Following consideration of the responses the Board made a number of findings. One of the most pertinent was that the prescriptive lists of required disclosures in some standards was driving reporting entities and their auditors to adopt a “check-list” approach. Their focus was on compliance with the relevant list and not on whether material information was being effectively communicated.
The Board recognised that defining what is effective communication across the whole range of activities undertaken by users of IFRS is neither practical nor desirable. Judgement is also required to establish what is or is not material information in different situations. However it has identified a number of improvements that can be made to the way in which disclosure requirements are presented in the current standards. These can be summarised as adopting a more principles based approach. This involves clearly defining the required objective of any disclosures but allowing for different ways of achieving it by providing examples and guidance on ways in which the objective may be achieved, rather than setting lists of prescriptive requirements.
The Board also recognised that there is no quick fix to the disclosure problem. Changing disclosure requirements in IFRS Standards will not in itself provide a solution. There is also a need a wider behavioural change among all involved in the preparation and analysis of financial statements towards the use and acceptance of greater judgement in determining what are appropriate disclosures. Addressing the disclosure problem will be an iterative process involving all stakeholders including the Board itself.
It has decided the way ahead is to develop guidance for the Board to use in the development of new or amended disclosure requirements in individual standards. It has also selected two “test standards” to which the guidance will be applied, IFRS 13 Fair Value Measurements and IAS 19 Employee Benefits. These two were considered to contain must of the issues that contribute to the disclosure problem.
In March 2021 the Board issued an Exposure Draft of proposed amendments to IFRS 13 and IAS 19. Comments were originally invited before 21 October 2021, but subsequently extended this until 12 January 2022.
A copy of the Exposure Draft can be viewed on the link below. We intend commenting on the changes proposed to IFRS 13 well before the deadline and will post these here when available.