Society Weighs in on IASB Disclosure Initiative

Chris Gaetano
Published Date:
Oct 2, 2017
Globe on money

The NYSSCPA advised the International Accounting Standards Board (IASB) to set clear requirements and avoid confusion with regards to the board's Principles of Disclosure initiative, which aims to improve disclosure quality for companies using IFRS. The Society's comment letter, published Sept. 29, was drafted in response to the IASB discussion paper Disclosure Initiative—Principles of Disclosurewhich was released in March. The IASB launched the disclosure initiative in response to feedback received in its 2015 agenda consultation, which indicated that the board should pursue projects centered around improving communications in financial reporting. 

The Society overall supported the IASB's initiative, as well as its goal in improving communication in financial reporting, saying that doing so will allow entities to better apply judgments and communicate more effectively, which in turn will improve the effectiveness of disclosures for the primary users of financial statements. It did suggest, though, tightening up the principles articulated in the concept paper. For instance, while the IASB suggested developing non-mandatory disclosure guidance, the Society felt this would only confuse matters. 

"Non-mandatory guidance would only further add confusion about what the mandatory reporting requirements are and increase diversity in practice and also lead to concerns over which disclosures were omitted and why. We believe that any “guidance” that is not mandatory would not be considered guidance. It would be seen as commentary or suggestions only," said the Society. 

The Society also said that disclosure guidelines should be made mandatory for items that are most important and relevant to understanding the underlying financial statements of all organizations. This would include things like the background and nature of the business or organization, the basis of presentation, sources of revenue, significant accounting policies, descriptions of critical transactions to risk and uncertainties, subsequent events, and complex transactions like derivative investments. It also said there need to be industry-specific disclosure requirements, covering areas like securities brokers, construction contractors, or airlines. 

It also advised the IASB to learn what it can from U.S. Generally Accepted Accounting Principles (U.S. GAAP), noting that the "U.S. went through a period of continued refinement of these disclosures and finally agreed on what we believe is clear and appropriate guidance on these types of items." On this same level, it urged the IASB to continue efforts to converge or align IFRS and U.S. GAAP standards. It noted that the principles-based framework of IFRS was developed in contrast to the rules-based framework for U.S. GAAP, but said that "experienced practitioners tend to draw from fundamental concepts learned early on; that the use of critical thinking and judgment as to the relevant information which needs to be disclosed in financial statements (within the mandatory guidance) should be the overriding concept." 

The Society also told the IASB to be wary of disclosure overload, saying that the there is a lot of concern about the length of standards and long lists of prescriptive written disclosure requirements. 

"Our members have observed the difficulty that financial statement preparers have in completing a “checklist” process without seeming to understand the underlying principles of disclosures and risk concerns. In addition, there is greater and growing pressure to provide 'documentation' to support all the underlying thinking that goes into the preparation of financial statements resulting in lengthy and cluttered financial statements that can prove confusing to financial statement users," said the Society. 

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