Financial reporting disclosures need to focus on relevant information and avoid boilerplate language, the UK Financial Reporting Council (FRC) said Tuesday in a call to action for preparers and auditors by FRC Accounting Council Chairman Roger Marshall (at left).
The guiding principle should be the production of annual reports that are fair, balanced and understandable, the FRC said in a news release. The FRC’s comments added to a worldwide focus on enhancing the quality of disclosures in financial reporting.
“Breaking the Boilerplate” was the topic of a recent speech by Hans Hoogervorst, chairman of the International Accounting Standards Board (IASB), which intends to develop a disclosure framework. The US Financial Accounting Standards Board (FASB) also is developing a disclosure framework, and stakeholders responding to a recent survey rated the project as the most important early-stage effort on the board’s agenda for the next three to five years.
The FRC recommended:
- Disclosures should focus on communication of relevant information to investors.
- Core information that is relevant for investors should be separated from supplementary information that only meets the needs of a wider stakeholder group.
- Placement of information outside the annual report may be more appropriate for supplementary information, where permitted by law.
- Immaterial information should be excluded.
- Boilerplate language should be avoided, with a focus on entity-specific disclosures.
- Related information should be linked to tell the story of a company.
The FRC applauded the IASB’s stated intentions to provide guidance on the application of materiality, focus on disclosure objectives, use less prescriptive language and update IAS 1, Presentation of Financial Statements, to refer to the exclusion of immaterial information.
But the FRC also recommended that the IASB:
- Develop a disclosure framework that considers disclosures in the financial report as a whole.
- Define the boundaries of financial reporting.
- Develop placement criteria.
- Reduce and define the “magnitude” terms used in IFRS, such as “significant”, “key” and “critical”.
—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.