ASB says more informative disclosures about capital management are needed
News types: Publications
Published: 14 December 2010
Adequate capital is essential to well run businesses particularly those seeking to fund future growth or manage a crisis. Investors have told the Accounting Standards Board (ASB) that they are interested in how much financial capital a business needs and whether there is a surplus or a deficit.
This ASB study of the quality of capital management disclosures (PDF) concludes that there is good practice in places. But too often there is excessive boilerplate text and too many companies have missed essential elements of the required disclosures.
Commenting on the study, Roger Marshall, Chairman of the Accounting Standards Board said:
“Capital management is a key discipline that should be on the regular agenda of all Boards. Adequate capital supports growth and provides a buffer against significant economic shocks so reducing the risk of a liquidity crisis. This is particularly important at present given the pressures on particular sectors facing the impact of reduced government spending.”
Informative disclosures made by some companies highlight good practice. For example, some linked capital to business strategy and to dividend policy. Markets are keen to avoid surprises so these disclosures need to explain the potential for future events such as a rights issue or a share buy back programme.
The ASB will continue to monitor the quality of capital disclosures in view of the importance of adequate capital during this phase of the business cycle.
Notes to Editors
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The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
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The role of the ASB is to oversee the financial reporting requirements for UK entities. This is done by maintaining and improving UK Financial Reporting Standards (FRS) and influencing the development of international standards. The ASB achieves this by collaborating with accounting standard-setters from other countries and the International Accounting Standards Board (IASB).
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The ASB has ten Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who have a variety of experiences as preparers, auditors and users of financial reports, are part-time.
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Corporate reporting and accounting standards require companies to explain what they see as capital, how it is managed and the key ratios and other quantitative data that are used to measure capital.
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Capital disclosures are required by International Financial Reporting Standards (IFRS). Disclosures about capital also feature in the ASB’s non-mandatory Reporting Statement on the Operating and Financial Review (OFR).