For some time, preparers have been asking for ways to present clear and relevant financial statement disclosures.
Meanwhile, users want preparers to provide more company-specific information, making the financial statements more relevant to their business and telling a coherent story.
The IASB has factored these concerns into its ‘disclosure initiative’, which aims to improve presentation and disclosures in financial reporting.
“These amendments are a welcome first step, even if only a small one, in a bigger disclosure initiative. The real ask here is for behavioural change, from preparers, auditors and regulators alike.”
To address some of the perceived problems with current disclosure requirements, on 18 December 2014 the IASB published clarifications to IAS 1 Presentation of Financial Statements.
These narrow-scope amendments are effective for periods beginning on or after 1 January 2016. However, early adoption is allowed.
But the amendments do not require any significant change to current practice. Only by keeping the bigger picture in mind, and avoiding a boilerplate, checklist approach to financial statement disclosures, can preparers achieve the improved reporting sought by these clarifications.
There is an emphasis on materiality. Specific single disclosures that are not material do not have to be presented – even if they are a minimum requirement of a standard.
The order of notes to the financial statements is not prescribed. Instead, companies can choose their own order, and can also combine, for example, accounting policies with notes on related subjects.
It has been made explicit that companies:
Specific criteria are provided for presenting subtotals on the balance sheet and in the statement of profit or loss and OCI, with additional reconciliation requirements for the statement of profit or loss and OCI.
The presentation in the statement of OCI of items of OCI arising from joint ventures and associates accounted for using the equity method follows IAS 1’s approach of splitting items that may, or that will never, be reclassified to profit or loss.
As part of the disclosure initiative’s short-term projects to improve disclosures, the final amendments to IAS 1 are joined by proposed amendments to IAS 7 Statement of Cash Flows, which propose:
In addition, medium-term research projects are planned:
More broadly, the IASB is considering presentation and disclosure as part of its revisions to its Conceptual Framework for Financial Reporting. The disclosure initiative complements the Board’s efforts in this respect.
Although not part of the disclosure initiative, a recent related development in this area is the short-term project to clarify guidance on the classification of liabilities in IAS 1, as set out in proposed amendments released in February 2015. We provide our insights on these proposals in our article and related In the Headlines.
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