IASB moves to improve clarity in financial reporting

The International Accounting Standards Board (IASB) is seeking to improve the clarity and transparency of financial reports with a series of proposals being opened for consultation.

It has published a draft that outlines proposed amendments to IAS 1 Presentation of Financial Statements.

The proposals, which result from one of several short-term projects under the IASB’s Disclosure Initiative, would help ensure that financial reports are used to communicate effectively, rather than simply being compliance documents, explained IASB chairman Hans Hoogervorst.

“These proposals form a small part of our efforts to encourage preparers, auditors and regulators away from a ticking-the-box mentality towards disclosures,” he said.

“These proposals are designed to help change behaviour, by emphasising the importance of understandability, comparability and clarity in presenting financial reports.”

According to the IASB draft, the changes would address concerns about existing presentation and disclosure requirements. They will also ensure that “entities are able to use judgement when preparing their financial statements”.

Too much extraneous information in financial reports is to be stamped out. The proposals, said the IASB, include an emphasis on the “potentially detrimental effect of overwhelming useful information with immaterial information”.

The IASB also wants to clarify that “specific line items in the statement(s) of profit or loss and other comprehensive income and the statement of financial position can be disaggregated”, as well as adding requirements for how an entity should present subtotals in such statements.

In addition, the proposals would clarify that entities can be flexible about the order in which they present the notes. Although it also wants to emphasise that “understandability and comparability should be considered by an entity when deciding that order”. Finally the plans would remove “potentially unhelpful” guidance that is contained in IAS 1 for identifying a significant accounting policy.

Meanwhile, IASB has this week published the March update to IFRS Interpretations Committee.