The European regulator, ESMA, has issued a statement encouraging companies to improve the quality of financial statement disclosures.
ESMA acknowledges different viewpoints of preparers and users on perceived disclosure overload, but remains concerned that too often companies provide disclosures that lack clarity, are not sufficiently relevant, or are just boilerplate.
The regulator notes that the quality and quantity of disclosures in financial statements continue to cause concern and that, despite national initiatives, relatively few companies have responded.
“We support continuous improvement in the quality of financial statement disclosures. ESMA’s expression of the support of European regulators will reassure preparers who want to respond by delivering concise and clear reporting.”
While ESMA commends initiatives by national regulators and standard setters – not least the IASB’s disclosure initiative – it continues to highlight the need for further improvement in the quality of disclosures.
It also encourages early application of elements of the, as they provide useful clarifications.
ESMA emphasises that improving disclosures is a continuous process and urges all parties involved – including preparers, auditors and regulators – to play an active role.
With this in mind, ESMA has developed five key disclosure principles that companies are encouraged to consider when deciding what to disclose in their financial statements.
Companies’ should make efforts to continuously improve disclosures – such efforts are likely to be welcomed by investors. This experimentation will help drive best practice, and will inform the direction of the IASB’s disclosure initiative and the application of IFRS more generally.
European national regulators will monitor and discuss companies’ progress in improving the quality of disclosures, and reflect on their enforcement practices.
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