Amendments proposed by the International Accounting Standards Board (IASB) on Tuesday are designed to play a role in the board’s effort to reduce disclosure overload.
Proposed amendments to IAS 1, Presentation of Financial Statements, are the result of one of several short-term projects under the IASB’s broader Disclosure Initiative. The initiative’s purpose is to ensure that financial reports are instruments of communication and not simply compliance documents, according to IASB Chairman Hans Hoogervorst.
“These proposals form a small part of our efforts to encourage preparers, auditors and regulators away from a ticking-the-box mentality towards disclosures,” Hoogervorst said in a news release. “These proposals are designed to help change behaviour, by emphasising the importance of understandability, comparability and clarity in presenting financial reports.”
The narrowly focused amendments proposed to IAS 1 are designed to address concerns about existing presentation and disclosure requirements and give preparers the ability to use judgement when they prepare financial statements.
The proposed amendments would:
- Clarify the materiality requirements in IAS 1 in an effort to avoid overwhelming useful information with immaterial information.
- Clarify that specific line items in the statements of profit or loss and other comprehensive income, and the statement of financial position can be disaggregated.
- Add requirements for how an entity should present subtotals in the statements of profit or loss and other comprehensive income, and the statement of financial position.
- Clarify that entities have flexibility in the order in which notes are presented but should consider understandability and comparability when deciding that order.
- Remove potentially unhelpful guidance in IAS 1 for identifying a significant accounting policy.
Comments are sought by July 23rd and can be made at the IFRS website.
Simplifying disclosures has been a focus of standard-setters worldwide. In the United States, the Financial Accounting Standards Board earlier this month issued a proposed concepts statement that would help the board create a process for identifying relevant information that should be included in notes to financial statements.
In October, Roger Marshall, chairman of the Accounting Council of the UK Financial Reporting Council, issued a call to action, saying financial reporting disclosures need to focus on relevant information and avoid boilerplate language.
—Ken Tysiac (email@example.com) is a CGMA Magazine senior editor.