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Disclosure Initiative Principles of Disclosure

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Presentation on theme: "Disclosure Initiative Principles of Disclosure"— Presentation transcript:

1 Disclosure Initiative Principles of Disclosure
IFRS® Foundation Disclosure Initiative Principles of Disclosure project EFRAG and NASB event 15 June 2017 The views expressed in this presentation are those of the presenter, not necessarily those of the International Accounting Standards Board (the Board) or IFRS Foundation. Copyright © IFRS Foundation. All rights reserved

2 Background to the Disclosure Initiative
IFRS Foundation Background to the Disclosure Initiative Copyright © IFRS Foundation. All rights reserved

3 Central theme of the Board’s work
3 Better Communication in Financial Reporting Primary Financial Statements Disclosure Initiative IFRS Taxonomy™ Content and its organisation Content delivery

4 History of the Disclosure Initiative
4 2011 Agenda Consultation 2012 Stakeholder Survey 2013 Discussion Forum Feedback Statement Disclosure Initiative launch 2013–date Work on several projects in Disclosure Initiative

5 The disclosure problem
5 The Board has identified three main concerns about disclosures in the financial statements: Not enough relevant information Irrelevant information Ineffective communication Can lead to inappropriate investing or lending decisions Can obscure relevant information and reduce understandability of financial statements Can reduce understandability of financial statements

6 Disclosure Initiative and related projects
6 Disclosure Initiative Completed projects Materiality implementation projects Research projects Related projects Amendments to IAS 1 to remove barriers to application of judgement Amendments to IAS 7 to improve disclosure of liabilities from financing activities Conceptual Framework Primary Financial Statements Materiality Practice Statement Definition of material Principles of Disclosure (this project) Standards-level Review of Disclosures © IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK.

7 Objective of the Principles of Disclosure project
IFRS Foundation Objective of the Principles of Disclosure project Copyright © IFRS Foundation. All rights reserved

8 Objective of the project
8 Request to develop disclosure principles that apply across IFRS Standards Help entities apply judgement and communicate effectively Help users by improving disclosures Help the Board improve disclosure requirements Ultimate goal: New general disclosure standard or amendments to IAS 1 Presentation of Financial Statements Possibly with supporting guidance/education material

9 Objective of the Discussion Paper
9 Seek feedback on Approaches to address identified disclosure issues Whether there are other disclosure issues to consider

10 Outline of Discussion Paper
10 Principles of effective communication in preparing financial statements Roles of the primary financial statements and the notes Location of information Principles on where to disclose information Use of performance measures Disclosure of accounting policies Principles to address specific disclosure concerns of users of financial statements Centralised disclosure objectives Drafting disclosure requirements Principles for improving disclosure objectives and requirements

11 Disclosure issues and possible approaches to address them
IFRS Foundation Disclosure issues and possible approaches to address them Copyright © IFRS Foundation. All rights reserved

12 Principles of effective communication
12 Ineffective communication can make financial statements difficult to understand and analyse Information in financial statements should be:

13 Roles of primary financial statements and notes
13 Entities have difficulty judging whether information should be provided in the primary financial statements or the notes Component of financial statements Role Primary financial statements are statements of: financial position financial performance changes in equity cash flows To provide a structured and comparable summary of an entity’s recognised assets, liabilities, equity, income and expenses Notes To explain and supplement the primary financial statements

14 Location of information
14 Information duplication and fragmentation can make financial statements less understandable and difficult to analyse Information necessary to comply with IFRS Standards may be placed outside financial statements, but within annual report if annual report more understandable financial statements understandable information is faithfully represented, cross-referenced and clearly identified Annual report Financial statements Information labelled as ‘non-IFRS’ may be placed within the financial statements if listed, clearly identified and explained

15 Use of performance measures
15 Can provide useful information if used correctly Can be misleading if used incorrectly Use of performance measures should be:

16 Disclosure of accounting policies
16 Users commonly express concerns about ineffective disclosure of accounting policies Guidance could: Clarify which accounting policies are necessary for understanding the financial statements Explain how to better organise and locate accounting policies and significant judgements and assumptions

17 Disclosure objectives and requirements
17 Problems Some Standards lack clear disclosure objectives Prescriptive disclosure requirements Some inconsistencies and unclear relationships between disclosures requirements Possible approaches Central set of disclosure objectives as a basis for more unified disclosure objectives and requirements Approach developed by the NZASB staff for drafting disclosure objectives and requirements in Standards

18 Centralised disclosure objectives—Method A
18 Focusing on types of information Information about: - the reporting entity; - methods, assumptions and judgements; - items in the primary financial statements; - unrecognised items; - risks and other uncertainties - management’s stewardship; - events after the end of the reporting period. Example of centralised disclosure objective Disclose information about changes in an entity’s investment in property, plant and equipment for users to understand how transactions and events during the reporting period have changed the entity’s financial position, financial performance or cash flows.

19 Centralised disclosure objectives—Method B
19 Focusing on entity’s activities Information about: - the reporting entity; - methods, assumptions and judgements; - operating and investing activities; - financing activities; - discontinued operations; and - taxation. Example of centralised disclosure objective An entity shall provide disclosures that enable users of financial statements to evaluate changes arising from financing activities, including both changes arising from cash flows and non-cash changes. [*] [*]: Example of centralised disclosure objective for liquidity and solvency

20 NZASB staff approach Objectives (standard-level)
20 Objectives (standard-level) Overall disclosure objective Disclosure subobjectives Disclosure requirements Tier 1—Summary information Tier 2—Additional information (if necessary) The approach: emphasises the use of judgment; and uses less prescriptive language.

21 Timetable of project and further information
IFRS Foundation Timetable of project and further information Copyright © IFRS Foundation. All rights reserved

22 Expected project timetable
22 30 March 2017 Discussion Paper published 2 October 2017 Comments due 2018 Board redeliberations Feedback on Discussion Paper will also inform Primary Financial Statements project Standards-level Review of Disclosures project

23 Contact us

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