Leading finance directors and senior
accountants have backed calls for financial statements to be cut by
30%.
At a debate hosted by the Institute of
Chartered Accountants of Scotland (ICAS) to look at reducing
disclosures in annual financial statements, preparers were the
keenest to see the cuts put into practice by the International
Accounting Standards Board (IASB).
Last year, ICAS and the New Zealand Institute
of Chartered Accountants (NZICA) were commissioned by the IASB to
make cuts to the disclosures within a certain group of IFRSs, which
included IFRS 1 to 8 and other IASs including 7, and produce a
report, Losing the Excess Baggage – reducing disclosures in
financial statements to what’s important, on their findings,
issued in July.
The conference heard how the size of corporate
accounts had increased threefold in ten years. However, as the size
and complexity of annual reports has grown, the ability to
understand them and their usefulness to users has shrunk.
Co-chair of the joint working group Isobel
Sharp said it is clear not all disclosures within the standards
should be mandatory and an element of judgment on the auditors’
part is required to decide what information is material and what
isn’t. However, she said as the current standards are rules based
this is difficult to do.
Taking this into account the report recommends
the standards should be based on principles and key disclosure
requirements.
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By GlobalDataSharp said the group found some disclosure
requirements were not being used for analysis but there was
pressure for the preparers to include the information because of a
fear of reprisal from their country regulator for not doing so.
Severn Trent chief financial officer Mike
McKeon said the burgeoning size of annual reports was driven by a
compliance culture rather than what might be useful for investors,
analysts and other users.
“We are in a vicious cycle of more and more
requires more and more. We need to focus on what is important, what
is relevant, what is material. The accounts need to be more
meaningful to users. It is difficult to say they are at the
moment,” McKeon said.
The UK Financial Reporting Council’s
Accounting Standards Board interim chairman Roger Marshall said
while the regulator does take some responsibility for enforcing the
disclosure requirements, ultimately it lies with the IASB to make
these cuts.
“But in the mean time working within the
guidelines of the current standards regulators, auditors and
preparers can all do something to reduce disclosure,” Marshall
noted.
Two tier disclosure model
One idea put forward by a representative of
the South African Institute of Chartered Accountants was a two tier
disclosure model where some of the disclosure would remain in the
printed annual report while the rest could be placed on a company’s
website.
Sharp argued that while this was considered
the main concern is the website would become a “dumping ground for
this information”. Some preparers agreed the two tier model is
preferable as it is easier to prepare information to put
online.
The International Accounting Standards Board
is now considering the views of ICAS and the findings of the joint
working party before deciding whether or not to implement the
recommendations made in this report.
It is thought the IASB will either put the
recommendations out for public consultation or use the information
gathered as reference when reviewing and creating new international
standards.
Of the 120 leading figures from accountancy
and finance present at the debate the majority agreed the report
should be put out for wider consultation.
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