Better communication needed in the notes of financial statements

The International Accounting Standards Board is looking to develop a new approach to disclosure requirements in IFRS standards. It is also looking for comments on new disclosure requirements for the standards on fair value measurement and employee benefits.

These proposals would, says the IASB, enable companies to enhance their judgement and reduce ‘boilerplate’ information, giving investors more useful information.

It explained that the notes in financial statements sometimes include too little relevant information, too much irrelevant information and information disclosed ineffectively. Stakeholders say this typically occurs when the requirements in IFRS standards are treated like a checklist without applying effective judgement.

Responding to stakeholder demand for the board’s help in addressing these issues, the IASB has set out a new approach to developing the disclosure requirements in the standards. Disclosure requirements developed using this approach are intended to better enable companies, auditors, and others to make more effective materiality judgements and thus provide disclosures that are more useful to investors.

The new approach is written as draft guidance for use by the board when developing disclosure requirements in individual standards. In applying this guidance, the IASB aims to:

• Enhance investor engagement to ensure the Board has an in-depth understanding of investors’ information needs and clearly explains those needs in the standards.
• Give greater prominence to the objective of disclosure requirements, requiring companies to apply judgement and provide information to meet the described investor needs.
• Minimise requirements to disclose particular items of information, and instead to help companies focus on disclosing material information only.

The IASB has tested this new approach using two IFRS Standards—IFRS 13 Fair Value Measurement and IAS 19 Employee Benefits—and has proposed amendments to the disclosure requirements in those Standards in the Exposure Draft.

Hans Hoogervorst, chair of the board, said: “We believe this new approach to developing disclosure requirements in IFRS standards can serve as a catalyst to improving information to investors; however, real improvements can only be achieved if all those involved—companies, auditors, regulators and investors—work together.”