On the ‘Disclosure Initiative – Principles of Disclosure’: The EAA Financial Reporting Standards Committee’s View

Abstract

This paper summarises the contents of a comment letter produced by a working group of 12 academics in response to the International Accounting Standards Board (IASB) Discussion Paper on principles of disclosure. The comment letter was submitted by the Financial Reporting Standards Committee (FRSC) of the European Accounting Association (EAA). The work includes reviews of relevant academic literature of areas related to the various questions posed by the IASB in the Discussion Paper, including the ‘disclosure problem’ and the objective of the project, the suggested principles of effective communication, the roles of the primary financial statements and notes, the location of information and the use of performance measures. The paper also discusses the disclosure of accounting policies, the objectives of centralised disclosure, and the New Zealand Accounting Standards Board staff’s approach to disclosure.

Keywords:

• disclosure
• accounting principles
• IFRS

Disclosure Statement

No potential conflict of interest was reported by the authors.

ORCID

Ricardo Luiz Menezes Silva http://orcid.org/0000-0001-5437-1657

Ana Morais http://orcid.org/0000-0001-7251-6418

Anna Vysotskaya http://orcid.org/0000-0002-5526-5634

Notes

1 One set of IASB actions dealing directly with the disclosure problem targets the application of the materiality concept. This is further described in Section 1, but it may be noted already here that these actions have continued since the DP (IASB, 2017), for example, in an agenda paper from October 2018, concerning disclosures of accounting policies (IASB, 2018), IASB staff recommend the Board to ‘ … clarify that not all accounting policies relating to material transactions, other events or conditions are themselves material’ (p. 2). The paper explicitly refers to a user describing accounting policy disclosures as ‘probably the most visible reason why this project started in the first place. [Accounting policy disclosures] are so meaningless and eat up so much space [in the financial statements]’ (pp. 3-4). This user comment on the disclosures can be made because the disclosures are there – the opposite comment will be more difficult to make, i.e. what information will be missing in a decision context where the disclosed accounting policy matters and where the entity has incentives to disclose as little as possible?

2 ^‘Duplication of information’ refers to the practice of repeating information in a financial report without adding further information. As an example, the DP (IASB, 2017, p. 20) refers to when the note disclosure for inventories repeats the information in the statement of financial position without adding further information.

3 Principle 12 in the EFRAG/FRC/ANC Discussion Paper: Care should be taken in applying the materiality principle in practice, bearing in mind that disclosing immaterial information (and information on situations that do not apply in practice to the reporting entity) reduces the relevance and the understandability of disclosures.

4 ISA 720, ‘The Auditor’s Responsibilities Relating to Other Information’, does include a definition of ‘annual report’.

5 Source: https://www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm

6 Kolev et al. (2008) define ‘high quality’ adjustments as those that are more transitory, i.e. the ‘appropriate’ items are excluded from GAAP earnings. They split total adjustments into ‘special items’ (i.e. those that are typically viewed as nonrecurring by financial statement users) and ‘other’ adjustments.

7 Following the Board’s approach in the Discussion Paper, we refer to the 2015 Exposure Draft (ED/2015/3) and not the Conceptual Framework adopted in 2010.