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.
Sharp 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.
http://vrl-financial-news.com/accounting/the-accountant/issues/ta-2011/ta-6094/accountants-back-financial-sta.aspx
