Disclosure initiative

Have you heard people talking about the disclosure initiative or decluttering financial statements?  What does it mean for your financial statements?

Both the Australian Accounting Standards Board (AASB) and International Accounting Standards Board (IASB) have active projects the aim of which is to improve the principles for determining the basic structure and content of the financial statements with a particular focus on the notes to the accounts.  Kris Peach, chair of the AASB has stated:

“Entities are not required to disclose immaterial information in their financial statements.  Just because a standard contains a list of disclosures does not mean that an entity must always make each of those disclosures in its financial statements.  Judgement is required to determine whether the relevant line item is material and also whether the specified disclosure is material.”

ASIC has also weighed into the discussion and in their recent media release ‘16-428MR ASIC calls on preparers to focus on useful and meaningful financial reports’ they stated:

“ASIC’s surveillance continues to focus on material disclosures of information useful to investors and others using financial reports, such as assumptions supporting accounting estimates, significant accounting policy choices, and the impact of new reporting requirements. We will not pursue immaterial disclosures that may add unnecessary clutter to financial reports. We encourage efforts to communicate information more clearly in financial reports.”

What these two statements highlight is that just because an accounting standard lists a disclosure it doesn’t mean you have to include it in your notes to the accounts.  We therefore see the disclosure initiative as an opportunity for companies to re-look at the way they present financial statements and improve the quality and relevance of the financial statements they prepare, especially since recent studies have found that the quality of a company’s financial statements directly influences their perception of management quality by users of those statements.   

Unfortunately, there is no standard template for what the disclosure initiative looks like.  Changes that you may consider are:
  • Deleting immaterial notes
  • Re-ordering notes based on the level of importance to your organisation
  • Including accounting policies within the note they relate rather than in a separate note
  • Only discussing new accounting standards issued not yet effective likely to have a material impact
  • Consider different formats to present information.  i.e. charts/graphs
At Moore Stephens we welcome the new disclosure initiative, however we strongly advise caution before making any changes in your financial reporting without seeking professional advice. The disclosure initiative is open for interpretation, so to ensure you are covered from a compliance and reputational perspective, please contact your local Moore Stephens office at your convenience to discuss this opportunity. At Moore Stephens, we are here to help you through this process so that you can streamline your reporting and get back to doing what you do best – running your business.