Our Financial Reporting Expert Group contributed to our response to IASB's consultation Disclosure Initiative – Principles of Disclosure.
We agreed that the underlying cause of the disclosure problem is the perceived ‘compliance’ approach to the presentation of information in the financial statements. We noted that this is often hindered by accounting standards asserting that a disclosure “shall” be given to comply with the disclosure objective of the standard, which is often interpreted as mandated disclosure regardless of materiality or relevance.
We commented that although a general disclosure standard or an update to IAS 1 may assist users in identifying a single location for the disclosure principles, it would not necessarily address the disclosure problem. We suggested that it would be more beneficial for the disclosure principles to be reflected in the disclosure requirements within all accounting standards rather than just a targeted few, as this would embed the disclosure principles throughout IFRS and ensure that a wide range of stakeholders consider the principles at every stage when determining the appropriate accounting treatment and disclosure for a transaction or event.
We agreed that the Board should develop principles of effective communication that entities should apply when preparing the financial statements as this would help preparers, users, auditors and regulators to understand the needs and requirements when preparing such information.
We commented that the principles of effective communication that entities should apply when preparing the financial statements should be issued as non-mandatory guidance. We indicated that this would allow the Board “to combine the principles with practical guidance – for instance, including examples of their application”, which would be helpful for preparers and auditors. We noted that adding to the existing standards would simply increase the disclosure burden.
We agreed with the Board's preliminary view regarding a EBITDA and EBIT. We noted that both are commonly-used performance measures in the UK, and can assist users in understanding the performance of an entity if used appropriately.
We commented that we did not think that that the Board should consider locating all disclosure objectives and requirements in IFRS Standards within a single Standard, or set of Standards, for disclosures. We noted that it is easier to follow and use if guidance is included in appropriate Standards.