FRC calls to action for improving disclosures

News types: Codes and Standards Announcements

Published: 29 October 2013

PN 093

As the reporting season approaches, Roger Marshall, Director of the Financial Reporting Council sets out a series of calls to action for preparers and auditors to consider improving the quality of disclosures in annual reports. These calls to action are based on feedback received on the FRC’s thought leadership paper ‘Thinking about disclosures in a broader context’.

In line with the FRC’s Corporate Governance Code, we believe that the guiding principle for annual reports as a whole to be fair balanced and understandable is crucial to high quality financial reporting.

The FRC recommends that:
  1. Disclosures should focus on communication of relevant information to investors.
  2. Core information that is relevant for investors is separated from supplementary information that only meets the needs of a wider stakeholder group.
  3. Placement of information outside the annual report may be more appropriate for supplementary information, where the law permits this.
  4. Immaterial information should be excluded.
  5. Boilerplate language should be avoided with a focus on entity specific disclosures.
  6. Related information is linked to tell the story of a company.

We have read with interest Hans Hoogervorst’s speech ‘Breaking the boilerplate’. Mr Hoogervorst’s speech echoes the FRC’s thinking on disclosures.  We are pleased to note that the IASB intends to develop a disclosure framework and we will continue to support the International Accounting Standards Board’s (IASB) project

In particular, we are pleased to note that the IASB intends to:
  • update IAS 1 Financial Statement: Presentation to refer to the exclusion of immaterial information;
  • provide guidance on the application of materiality; and
  • focus on disclosure objectives and use less prescriptive language.

In addition, we would recommend that the IASB:
  1. Develops a disclosure framework that considers disclosures in the financial report as a whole.
  2. Defines the boundaries of financial reporting.
  3. Develops placement criteria.
  4. Reduces and defines the “magnitude” terms used in IFRSs, such as significant, key and critical.

There is global momentum for improving disclosures and we are pleased to note that the Financial Accounting Standards Board (FASB) is also advancing in its project on the Disclosure Framework.

Notes to editors:

The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.