News & Analysis

IASB provides relief on disclosure notes

In an effort to make financial statements less cluttered, the international accounting standard setter granted preparers more say on when to make certain disclosures.

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The International Accounting Standards Board (IASB) made changes to permit GPs, and other financial reporting preparers, to apply more professional judgement in determining what information to disclose in their financial statements.

The IASB, responsible for the International Financial Reporting Standards (IFRS) accounting rules, issued the amendments to IAS 1 Presentation of Financial Statements as part of a major overhaul to improve presentation and disclosure in financial reports.

The IASB’s amendments make clear that “materiality” applies to the whole of financial statements so that disclosures do not become bloated with irrelevant information that can inhibit the usefulness of financial disclosures. Furthermore, the amendments clarify that companies should use professional judgement in determining where and in what order information is presented in the financial disclosures.

The changes strike at the heart of a major problem with disclosure notes, a source close to the board said. “A problem [with disclosures] is that even though auditors and preparers understand in principle what disclosure notes are material, they’re less certain about when discretion should actually be applied.”

As part of the disclosure Initiative, the IASB also published for public comment an Exposure Draft of proposed amendments to IAS 7 Statement of Cash Flows. That proposal responds to requests from investors for improved disclosures about an entity’s financing activities and its cash and cash equivalents balances.

“There is a real appetite for improving disclosure in financial reporting. While problems with disclosures cannot be solved by the IASB alone, we do have an important part to play. Today’s announcement shows that we intend to deliver on this challenge,” said in a statement Hans Hoogervorst, chairman of the IASB.

GPs can begin to use the changes to disclosures made in IAS1 immediately, and they become mandatory for annual periods beginning on or after January 1, 2016. Comments on the proposed amendments to IAS 7 should be sent to the IASB by April 17, 2015.