A recent European Financial Reporting Advisory Group discussion paper is a significant step toward streamlined disclosures in financial reporting.
The document aims to tidy up disclosure notes, which have grown steadily as the IASB adds disclosure requirements in the name of transparency.
EFRAG’s discussion paper was released July 12th, the same day the US Financial Accounting Standards Board (FASB) put out its disclosure framework discussion paper. Both financial boards asked for comments to help improve the process.
“The objectives of the two documents are the same,” the FASB report said. “That is, both aim to improve the effectiveness of disclosure.”
EFRAG devoted a chapter to the theme of communication. The discussion paper says disclosures in financial statements should be a tool for communicating information but that an emphasis on compliance can muddle the message.
Here are six communication principles developed by EFRAG to help make disclosures more effective:
Disclosures should be entity-specific.
Disclosures should be current.
Disclosures should inform and explain the substance of the transaction, going beyond the requirements if necessary.
Disclosures should be organised.
Disclosures should be clear, balanced, concise and written in plain language.
Disclosures should be linked to other related information.
The EFRAG discussion paper says the increased length of disclosure notes has “done little to improve the quality of information, and may have even decreased it because of information overload.”
EFRAG developed the discussion paper with the French Autorite des Normes Comptables (ANC) and the UK’s Financial Reporting Council (FRC). EFRAG asked for comment by December 31st. FASB invites comment to its discussion paper by November 16th.
—Neil Amato (email@example.com) is a CGMA Magazine senior editor.