The IASB is proposing a new approach to developing disclosure requirements in IFRS Standards. The new approach is written as draft guidance for use by the Board when developing disclosure requirements in individual Standards. The IASB has tested this new approach by applying it to two ‘pilot’ IFRS Standards; IFRS 13 Fair Value Measurement and IAS 19 Employee Benefits, and has proposed amendments to the disclosure requirements in those Standards.
The approach the IASB is proposing is fundamentally different to the status quo - it would see a move away from disclosure requirements to disclosure objectives. We are concerned that the proposals lack sufficient specificity that could lead to a significant level of entity-specific choice around what to disclose to meet the specific disclosure objectives.
Overall, we support:
- The IASB’s ongoing efforts to make financial statement disclosures more useful and improve communication effectiveness, and
- The objective of the project to enhance how the IASB develops disclosure requirements.
Feedback received from preparers, auditors and regulators on the concept of ‘specific disclosure objectives’ and ‘items of information’ has highlighted a number of practical challenges and, as such, we do not support these aspects of the proposals at present. At this stage we believe the retention of specific disclosure requirements is preferable.
The approach we suggest is as follows:
- Amendments to the IASB’s Due Process Handbook to require the IASB to work more closely with users of financial statements and other stakeholders early in the standard-setting process to understand what information they need.
- A methodology for developing and drafting disclosure requirements (e.g., centralised disclosure objectives), with the same level of rigour as requirements for recognition and measurement, added to the Conceptual Framework.
- Overall disclosure objectives within individual standards (similar to the more recent standards from IFRS 12 onwards), including an explanation of what the information is intended to help users do.
- A standards-level review of specific disclosure requirements within individual standards to make clear, in consistent language, which of the disclosure requirements are always required and which are only required if material, and remove any excessive, repetitive or redundant disclosures.
On the basis that we do not agree with the underlying approach, we have not provided feedback on the proposed amendments to the two pilot standards (IFRS 13 and IAS 19).