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New IFRS disclosure objectives risk being ‘too boilerplate’, says ICAEW

Author: ICAEW Insights

Published: 08 Dec 2021

A proposed new approach to developing disclosure requirements in IFRS Standards and new disclosure requirements for IFRS 13 and IAS 19 may have a detrimental impact on disclosures and impair comparability, ICAEW has warned in its response to an IASB consultation.

The standard-setter is seeking stakeholder feedback on whether an objectives-based approach to developing disclosure requirements and proposed amendments to IFRS 13 Fair Value Measurement and IAS 19 Employee Benefits would help companies and others improve the usefulness of information disclosed.

Objectives-based disclosure requirements are intended to better enable companies, auditors and other stakeholders to make more effective materiality judgments and thus provide disclosures that are more useful to investors.

The proposed changes followed concerns by the IASB that the notes in financial statements sometimes include too little relevant information, too much irrelevant information and information disclosed ineffectively. Stakeholders say this typically occurs when the requirements in IFRS Standards are treated like a checklist without applying effective judgment.

However, in its response ICAEW said it believed that the emphasis on meeting objectives rather than disclosing specific items would not necessarily result in more meaningful disclosures for stakeholders: “While ICAEW welcomes the development of objectives-based disclosure requirements, we are concerned that the removal of requirements to disclose specific items may lead to an overall worsening of disclosures in practice and is likely to impair comparability.”

The response, drafted by ICAEW’s Financial Reporting Faculty, also expressed concern that the disclosure objectives are too high-level and boilerplate. “They also fail to adequately explain what information financial statement users need and how they will use it,” ICAEW warns. 

ICAEW says more explicit clarification of what is expected of financial reporters would be beneficial: “If specific disclosure objectives are to be effective, they need to be supported by clear and granular explanations of what information users want and how and when that information is used. Only then will preparers be able to apply a materiality filter and assess whether a disclosure is needed in the current year and, if so, what information needs to be provided,” ICAEW says in its submission.

ICAEW has said it would prefer an approach that sets out specific disclosure objectives with a list of disclosures that are required if they are considered material to users of the financial statements and an overarching requirement to consider whether any further information or explanations are needed to ensure that the relevant disclosure objectives are met. 

It suggests removing the category of ‘non-mandatory’ disclosures in each standard and instead retaining a more comprehensive list of disclosures that would be required if they are considered to be material to meeting the objectives in light of users’ needs. “Entities would then need to exercise judgment to determine whether they should add supplementary information and explanations where this is needed to give users a full understanding of their particular situation.”

Consultation on the Exposure Draft below is open until 12 January 2022. 

For further resources on IFRS visit icaew.com/ifrsstandards

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