ITC35_04-17
AASB Invitation to Comment ITC 35
April 2017
Disclosure Initiative – Principles
of Disclosure
Comments to the AASB by 4 September 2017
ITC 35 ii COPYRIGHT
How to Comment on this AASB Invitation to Comment
Constituents are strongly encouraged to respond to the AASB and the IASB. The AASB is
seeking comment by 4 September 2017. This will enable the AASB to consider Australian
constituents’ comments in the process of formulating its own comments to the IASB, which
are due by 2 October 2017.
Formal Submissions
Submissions should be lodged online via the “Work in Progress – Open for Comment” page
of the AASB website (www.aasb.gov.au/comment) as a PDF document and, if possible, a
Word document (for internal use only).
Other Feedback
Other feedback is welcomed and may be provided via the following methods:
E-mail:
[email protected] Phone: (03) 9617 7600
All submissions on possible, proposed or existing financial reporting requirements, or on the
standard-setting process, will be placed on the public record unless the Chair of the AASB
agrees to submissions being treated as confidential. The latter will occur only if the public
interest wa
ants such treatment.
COPYRIGHT
© Commonwealth of Australia 2017
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ISSN 1320-8713
ITC 35 iii REQUEST FOR COMMENTS
AASB REQUEST FOR COMMENTS
The Australian Accounting Standards Board’s (AASB’s) policy is to incorporate International
Financial Reporting Standards (IFRS Standards) into Australian Accounting Standards.
Accordingly, the AASB is inviting comments on:
(a) any of the proposals in the attached International Accounting Standards Board (IASB)
Discussion Paper, including the specific questions listed at the end of each section of the
attached IASB Discussion Paper; and
(b) the ‘AASB Specific Matters for Comment’ listed below.
AASB Specific Matters for Comment
The AASB would particularly value comments on the following:
1. whether there are any regulatory issues or other issues arising in the Australian
environment that may affect the implementation of the proposals, particularly any issues
elating to:
(a) not-for-profit entities; and
(b) public sector entities, including GAAP/GFS implications;
2. whether, overall, the proposals would result in financial statements that would be useful
to users;
3. whether the proposals would be in the best interests of the Australian economy; and
4. unless already provided in response to specific matters for comment 1 – 3 above, the
costs and benefits of the proposals relative to the cu
ent requirements, whether
quantitative (financial or non-financial) or qualitative. In relation to quantitative
financial costs, the AASB is particularly seeking to know the nature(s) and estimated
amount(s) of any expected incremental costs, or cost savings, of the proposals relative to
the existing requirements.
Relationship to Other AASB Projects
AASB 1053 Application of Tiers of Australian Accounting Standards establishes a differential
eporting framework consisting of two tiers of reporting requirements for preparing general
purpose financial statements. Tier 2 comprises the recognition, measurement and presentation
equirements of Tier 1 and substantially reduced disclosures co
esponding to those
equirements. The AASB is cu
ently seeking comment on a new set of principles to be used
in determining the level of Tier 2 disclosures that are necessary for meeting user needs
(Exposure Draft ED 277 Reduced Disclosure Requirements for Tier 2 Entities).
Australian Accounting Standards also include requirements that are specific to Australian
entities. These requirements may be located in Australian Accounting Standards that
incorporate IFRS Standards or in other Australian Accounting Standards. In most instances,
these requirements are either restricted to the not-for-profit or public sectors or include
additional disclosures that address domestic, regulatory or other issues.
The outcomes of the IASB Discussion Paper may inform future AASB work with respect to
Tier 2 entities, not-for-profit entities or Australian additional disclosures.
Discussion Paper DP/2017/1
March 2017
Disclosure Initiative—Principles
of Disclosure
Comments to be received by 2 October 2017
Disclosure Initiative—Principles
of Disclosure
Comments to be received by 2 October 2017
Discussion Paper DP/2017/1 Disclosure Initiative—Principles of Disclosure is published by the International
Accounting Standards Board (the Board) for comment only. Comments on the Discussion Paper must be
eceived by 2 October 2017 and should be submitted in writing to the address below or electronically
via the ‘Comment on a proposal’ page (go.ifrs.org/comment).
All responses will be put on the public record and posted on our website unless the respondent requests
confidentiality. Requests for confidentiality will not normally be granted unless supported by a good
eason, such as commercial confidence.
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Copyright © 2017 IFRS Foundation®
ISBN: 978-1-911040-47-7
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CONTENTS
from page
SUMMARY AND INVITATION TO COMMENT 4
SECTION 1—OVERVIEW OF THE ‘DISCLOSURE PROBLEM’ AND THE
OBJECTIVE OF THIS PROJECT 12
Questions for respondents 18
SECTION 2—PRINCIPLES OF EFFECTIVE COMMUNICATION 19
Summary of the Board’s preliminary views and questions for respondents 27
SECTION 3—ROLES OF THE PRIMARY FINANCIAL STATEMENTS AND THE
NOTES 28
Summary of the Board’s preliminary views and questions for respondents 36
SECTION 4—LOCATION OF INFORMATION 37
Summary of the Board’s preliminary views and questions for respondents 47
SECTION 5—USE OF PERFORMANCE MEASURES IN THE FINANCIAL
STATEMENTS 48
Summary of the Board’s preliminary views and questions for respondents 58
SECTION 6—DISCLOSURE OF ACCOUNTING POLICIES 59
Summary of the Board’s preliminary views and questions for respondents 67
SECTION 7—CENTRALISED DISCLOSURE OBJECTIVES 68
Summary of the Board’s preliminary views and questions for respondents 80
SECTION 8—NEW ZEALAND ACCOUNTING STANDARDS BOARD STAFF’S
APPROACH TO DRAFTING DISCLOSURE REQUIREMENTS IN IFRS
STANDARDS 82
Questions for respondents 98
APPENDIX—ILLUSTRATION OF APPLYING METHOD B IN SECTION 7 99
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation3
Summary and invitation to comment
Why is the Board publishing this Discussion Paper?
IN1 In response to feedback received through its 2015 Agenda Consultation, the
International Accounting Standards Board (the Board) plans to focus on projects
that will improve communication in financial reporting. For this reason, Bette
Communication in Financial Reporting is a central theme of the Board’s work
for 2017–21.
IN2 Feedback that there is a need to improve the disclosure of financial information
is consistent with the feedback received by the Board in 2013 at its public
Discussion Forum on Financial Reporting Disclosure, which led the Board to
establish the Disclosure Initiative. The Disclosure Initiative is a
oad-based
initiative exploring how to make disclosures more effective in financial
statements and it forms a key part of the Board’s work on Better Communication
in Financial Reporting.
IN3 This Principles of Disclosure project is one of several within the Disclosure
Initiative. The main objective of this project is to identify disclosure issues and
develop new, or clarify existing, disclosure principles in IFRS Standards to
address those issues and to:
(a) help entities to apply better judgement and communicate information
more effectively;
(b) improve the effectiveness of disclosures for the primary users1 of
financial statements; and
(c) assist the Board to improve disclosure requirements in Standards.
IN4 These disclosure principles could range from high level concepts—for example,
overall principles of effective communication—to general requirements fo
disclosing information.
IN5 IAS 1 Presentation of Financial Statements contains general requirements fo
disclosures in the financial statements. Consequently, this Discussion Pape
considers the existing requirements in IAS 1 as a starting point with a view to
either:
(a) making amendments to parts of IAS 1; o
(b) creating a new disclosure standard to replace parts of IAS 1.
Throughout this Discussion Paper the term ‘general disclosure standard’ refers
to either an amendment to IAS 1 or a new disclosure standard that replaces parts
of IAS 1.
IN6 This Discussion Paper describes and seeks stakeholders’ views on:
(a) disclosure issues that the Board has identified during its outreach before
and during the project; and
1 Throughout this Discussion Paper the terms ‘primary users’ and ‘users’ refer to existing and
potential investors, lenders and other creditors who must rely on general purpose financial reports
for much of the financial information they need.
DISCUSSION PAPER—MARCH 2017
� IFRS Foundation 4
(b) approaches to address these issues, including the Board’s preliminary
views, where these have been developed.
IN7 In this Discussion Paper the Board focuses on the issues that it identified during
its outreach, therefore it does not cover all the issues that the Board would cove
in an Exposure Draft of a general disclosure standard. The Board also seeks
views on additional disclosure issues to address in this project.
IN8 The Board is also taking the opportunity of this public consultation to seek
feedback to supplement its research in other projects. For example, feedback on
this Discussion Paper will also inform the Board’s Primary Financial Statements
project and the Standards-level Review of Disclosures project.
Who will be affected if the suggestions in this
Discussion Paper are implemented?
IN9 The suggestions in this Discussion Paper might lead to an amendment to parts
of IAS 1 or the issue of a new disclosure standard to replace parts of IAS 1. IAS 1
provides overall requirements for the presentation of financial statements,
guidelines for their structure and minimum requirements for their content.
Consequently, this Discussion Paper is relevant to all entities preparing financial
statements in accordance with IFRS Standards, and all users of those financial
statements. It is also relevant to auditors, regulators and other interested parties
that are involved in financial reporting.
What does this Discussion Paper cover?
Sections in this Discussion Pape
No. Title Summary
1 Overview of the
‘disclosure problem’
and the objective of
this project
Summarises the main concerns that the
Board has identified (collectively refe
ed to
as the ‘disclosure problem’), sets out the
ackground and objective of this project, and
explains how this project interacts with the
Board’s other projects, including other parts
of the Disclosure Initiative.
2 Principles of effective
communication
Discusses principles of effective
communication that entities should apply in
preparing financial statements.
3 Roles of the primary
financial statements
and the notes
Discusses the roles of the different
components of the financial statements and
how those roles help to meet the objective of
the financial statements.
continued...
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
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...continued
No. Title Summary
4 Location of information Discusses:
● when an entity can provide
information that is necessary to
comply with IFRS Standards outside
the financial statements; and
● when an entity can provide
information that is identified as
‘non-IFRS information’, or by a simila
labelling, within the financial
statements.
5 Use of performance
measures in the
financial statements
Discusses fair presentation of performance
measures in the financial statements.
6 Disclosure of
accounting policies
Discusses ways to improve how entities
disclose their accounting policies.
7 Centralised disclosure
objectives
Discusses the development of centralised
disclosure objectives and how the Board
could use them as a basis to develop and
organise disclosure objectives and
equirements in IFRS Standards.
Section 7 discusses two methods—Methods A
and B—of developing centralised disclosure
objectives.
8 New Zealand
Accounting Standards
Board staff’s approach
to drafting disclosure
equirements in IFRS
Standards
Describes an approach that has been
developed by the staff of the New Zealand
Accounting Standards Board (NZASB staff) fo
drafting disclosure objectives and
equirements in IFRS Standards.
DISCUSSION PAPER—MARCH 2017
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Content of the Discussion Pape
Drafting disclosure
equirements
Principles of effective communication
Principles on where to disclose information
Role of the primary
financial statements
and of the notes
Location of information
Principles to address specific disclosure concerns
expressed by users of financial statements
Use of
performance measure
Disclosure of
accounting policies
Principles to improve disclosure objectives
and requirements
Centralised disclosure
objectives
Summary of the Board’s preliminary views in this
Discussion Pape
IN10 The Board’s preliminary views are that a general disclosure standard should
include disclosure principles that:
(a) identify, and describe the role of, the primary financial statements and
the implications of that role (Section 3);
(b) describe the role and content of the notes (Section 3);
(c) describe when an entity can provide information that is necessary to
comply with IFRS Standards outside the financial statements (Section 4);
(d) describe when an entity can provide information that is identified as
‘non-IFRS information’, or by a similar labelling, within the financial
statements (Section 4);
(e) describe how performance measures can be fairly presented in financial
statements (Section 5);
(f) clarify which accounting policies are required to be disclosed (Section 6);
and
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation7
(g) identify and describe centralised disclosure objectives (Section 7).
IN11 The Board’s preliminary views are that guidance about the following matters
should be provided, either in a general disclosure standard or in non-mandatory
guidance, for example, in educational material:
(a) principles of effective communication that entities should apply when
preparing financial statements (Section 2); and
(b) the location of accounting policy disclosures (Section 6).
IN12 The Board’s preliminary view is that non-mandatory guidance on use of
formatting in the financial statements should be developed (Section 2).
IN13 The Board’s preliminary view is that, when subsequently drafting IFRS
Standards, if the Board uses the terms ‘present’ and ‘disclose’ when describing
where to provide information in the financial statements, it should also specify
the intended location as being either ‘in the primary financial statements’ or ‘in
the notes’ (Section 3).
IN14 The Board’s preliminary views are that it should:
(a) develop definitions of, and requirements for, the presentation of unusual
or infrequently occu
ing items in the statement(s) of financial
performance (Section 5); and
(b) clarify that the following subtotals in the statement(s) of financial
performance comply with IFRS Standards if such subtotals are in
accordance with paragraphs 85–85B of IAS 1 (Section 5):
(i) EBITDA2 subtotal if an entity uses the ‘nature of expense’
method;3 and
(ii) EBIT2 subtotal under both a ‘nature of expense’ method and a
‘function of expense’ method.
IN15 The feedback on the Board’s preliminary views in paragraph IN14 relating to
presentation in the statement(s) of financial performance will be considered
within the Board’s Primary Financial Statements project (see paragraph 1.17(a)).
Terminology used in this Discussion Pape
IN16 Some of the following terms are already defined in IFRS Standards and when this
applies, a reference to the Standard is provided. Others are suggested definitions
or descriptions on which the Board is soliciting comments from stakeholders
and a reference to their use in this Discussion Paper is provided:
2 EBITDA: earnings before interest, taxation, depreciation and amortisation. EBIT: earnings before
interest and tax.
3 Paragraphs 99–103 of IAS 1 Presentation of Financial Statements require expenses to be classified using
either the ‘nature of expense’ method or the ‘function of expense’ method.
DISCUSSION PAPER—MARCH 2017
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(I) Accounting policies—the specific principles, bases, conventions, rules
and practices applied by an entity in preparing and presenting financial
statements (paragraph 5 of IAS 8 Accounting Policies, Changes in Accounting
Estimates and E
ors).4
(II) Annual report—a single reporting package issued by an entity that
includes the financial statements (discussed in paragraph 4.10).
(III) Centralised disclosure objectives—a central set of disclosure
objectives developed by the Board that provide a basis (or framework) fo
developing disclosure objectives and requirements in Standards
(discussed in paragraphs 7.1 and 7.10–7.11).
(IV) Financial report5—a report that provides the reporting entity’s primary
users with information about the reporting entity’s economic resources,
claims against the entity and changes in those economic resources and
claims (paragraph 3.2 and Appendix B of the Exposure Draft of a revised
Conceptual Framework for Financial Reporting (Conceptual Framework Exposure
Draft).
(V) Financial statements6—a particular form of general purpose financial
eport that provides information (about the reporting entity’s assets,
liabilities, equity, income and expenses) that is useful to the primary
users of those statements in assessing the prospects for future net cash
inflows to the entity and in assessing management’s stewardship of the
entity’s resources. A complete set of financial statements comprises the
primary financial statements and the notes (paragraphs 3.2 and 3.4 and
Appendix B of the Conceptual Framework Exposure Draft and paragraph 10
of IAS 1).
(VI) General disclosure standard—a term used for the purpose of this
Discussion Paper to describe either an amendment to IAS 1 or a new
disclosure standard that replaces parts of IAS 1 (paragraph 1.13).
(VII) Interim report—a financial report containing either a complete set of
financial statements (as described in IAS 1) or a set of condensed
financial statements (as described in IAS 34 Interim Financial Reporting) fo
an interim period (paragraph 4 of IAS 34).
(VIII) Notes—that part of the financial statements other than the primary
financial statements. Notes provide further information necessary to
disaggregate, reconcile and explain the items recognised in the primary
financial statements and supplement the primary financial statements
4 As part of its forthcoming proposed amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and E
ors to clarify the distinction between accounting policies and accounting estimates,
the Board is expected to propose to clarify this definition as follows: ‘Accounting policies are the
specific principles and practices applied by an entity in preparing and presenting financial
statements’.
5 ‘Financial report’ refers to a general purpose financial report, unless indicated otherwise.
6 ‘Financial statements’ refer to general purpose financial statements, unless indicated otherwise.
General purpose financial statements are those intended to meet the needs of users who are not in
a position to require an entity to prepare reports tailored to their particular information needs
(paragraph 7 of IAS 1).
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation9
with other information that is necessary to meet the objective of
financial statements (discussed in paragraphs 3.28 and 3.30).
(IX) Performance measure7—for the purpose of this Discussion Paper, a
summary financial measure of an entity’s financial performance,
financial position or cash flows (discussed in paragraph 5.2).
(X) Primary financial statements—the statement of financial position,
statement(s) of financial performance, statement of changes in equity
and statement of cash flows (discussed in paragraph 3.19).
(XI) Primary users of financial statements (financial reports)—existing
and potential investors, lenders and other creditors who cannot require
eporting entities to provide information directly to them and must rely
on general purpose financial statements (general purpose financial
eports) for much of the financial information they need (paragraph 1.5
and Appendix B of the Conceptual Framework Exposure Draft). The primary
users are considered to have a reasonable knowledge of business and
economic activities and review and analyse the information diligently
(paragraph 2.35 of the Conceptual Framework Exposure Draft).
(XII) Relevant financial information—information capable of making a
difference in the decisions made by users (paragraph 2.6 and Appendix B
of the Conceptual Framework Exposure Draft).
(XIII) Statement(s) of financial performance—statement(s) presenting profit
or loss and other comprehensive income.
What are the next steps in this project?
IN17 The views expressed in this Discussion Paper are preliminary and subject to
change. The Board will consider the comments received on this Discussion
Paper before deciding whether to develop an Exposure Draft containing
proposals to amend or replace parts of IAS 1 and/or develop non-mandatory
guidance. The feedback received will also be used to inform the Board’s othe
projects.
7 For ease of reference the term ‘performance measure’ has been used to refer to summary financial
measures of an entity’s financial position and cash flows, as well as of an entity’s financial
performance, for the purposes of this Discussion Paper. This is because this term appears to be well
understood and widely used, and because most financial measures provided by an entity are
measures of financial performance.
DISCUSSION PAPER—MARCH 2017
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Invitation to comment
The Board invites comments on all matters in this Discussion Paper and, in particular, on
the questions for respondents set out at the end of each section. Comments are most
helpful if they:
(a) respond to the questions as they are set out in this Discussion Paper;
(b) indicate the specific paragraphs or group of paragraphs to which they relate;
(c) contain a clear rationale; and
(d) describe any alternative that the Board should consider, if applicable.
Respondents need not comment on all of the questions and are encouraged to comment on
any additional matters.
The Board will consider all comments received in writing by 2 October 2017 (180 days).
How to comment
Comments should be submitted using one of the following methods:
Electronically
(our prefe
ed method)
Comments can be sent electronically via the ‘Comment on a
proposal’ page at: go.ifrs.org/comment
By email Comments can be emailed to:
[email protected]By post Written comments should be sent to:
IFRS Foundation
30 Cannon Street
London EC4M 6XH
United Kingdom
All comments will be on the public record and posted on our website unless confidentiality
is requested. Such requests will not normally be granted unless supported by good reason,
for example, commercial confidence. Please see our website for further details on this and
on how we use your personal data.
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation11
Section 1—Overview of the ‘disclosure problem’ and the
objective of this project
1.1 This section describes:
(a) the background to the Disclosure Initiative (paragraphs 1.2−1.4);
(b) the disclosure problem (paragraph 1.5);
(c) causes of the disclosure problem (paragraphs 1.6−1.8);
(d) the need for principles of disclosure (paragraphs 1.9−1.10);
(e) the objective of this project (paragraphs 1.11−1.13);
(f) the objective of this Discussion Paper (paragraph 1.14); and
(g) interactions with the Board’s other projects (paragraphs 1.15−1.18).
Background to the Disclosure Initiative
1.2 In its Agenda Consultation in 2011, the Board received feedback that financial
statements are increasingly perceived as burdensome to prepare and that there
are concerns about how well they meet the needs of their primary users.
1.3 In response to these concerns, the Board:
(a) researched other organisations’ work on the quality of disclosures in
financial reporting, some of whom suggested actions that the Board
might take to improve disclosures.8
(b) conducted a survey on financial reporting disclosure in December 2012
seeking the views of entities that prepare financial statements, users of
financial statements and other stakeholders on disclosure issues.
(c) hosted a public Discussion Forum on Disclosures in Financial Reporting
(the Discussion Forum) in January 2013 that was attended by
approximately 120 people, comprising entities that prepare financial
statements, auditors, regulators, users of financial statements and
standard-setters, including representatives from the organisations in
(a) that had already undertaken work in this area. The purpose of the
Discussion Forum was to obtain a better understanding of the problems
stakeholders have raised, and to identify what action the Board might
take to address them.
(d) published a Feedback Statement in May 2013 summarising the views
expressed at the Discussion Forum and the Board’s recommended
actions resulting from them.
1.4 In response to this feedback, in 2013 the Board launched its Disclosure Initiative,
a portfolio of implementation and research projects, to address the problems
identified and improve the effectiveness of disclosures in financial statements.
8 See pages 5 and 23–30 of the Feedback Statement: Discussion Forum–Financial Reporting Disclosure
(http:
www.ifrs.org/Alerts/PressRelease/Documents/2013/Feedback-Statement-Discussion-Forum-
Financial-Reporting-Disclosure-May-2013.pdf).
DISCUSSION PAPER—MARCH 2017
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The disclosure problem
1.5 The Board has observed that there are three main concerns about information
disclosed in general purpose financial statements (termed the ‘disclosure
problem’). These are described in the following table:
Table 1.1—The disclosure problem
The Disclosure Problem
1. Not enough
elevant information
2. I
elevant
information
3. Ineffective
communication of the
information provided
Information is relevant
if it is capable of
making a difference in
the decisions made by
the primary users of
financial statements. If
financial statements do
not provide enough
elevant information,
their users might make
inappropriate investing
or lending decisions.
I
elevant information is
undesirable because:
● it clutters the
financial
statements so
that relevant
information
might be
overlooked o
hard to find,
making financial
statements
difficult to
understand; and
● it can add
unnecessary
ongoing cost to
the preparation
of the financial
statements.
If information is
communicated
ineffectively, it makes
the financial statements
hard to understand and
time-consuming to
analyse. Additionally,
users of the financial
statements may
overlook relevant
information or fail to
identify relationships
etween pieces of
information in different
parts of the financial
statements.
Causes of the disclosure problem
1.6 Entities need to use their judgement when deciding what information to
disclose in financial statements and the most effective way to organise and
communicate it. The main causes of the disclosure problem appear to be
difficulties in applying this judgement.
1.7 The Board has received feedback that difficulties in applying judgement are
often behavioural, rather than caused by the requirements in IFRS Standards.
The feedback indicates that some entities, auditors and regulators approach
financial statements primarily as compliance documents, rather than as a
means of communication with users of the financial statements. They
sometimes apply the disclosure requirements in IFRS Standards mechanically,
using them as a checklist for disclosures in the financial statements, rather than
applying their judgement to determine what information is relevant to users
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation13
and how best to communicate that information. Some entities have said that it
is easier to use a checklist approach than to apply judgement because of time
pressures, and because following a mechanical approach means that thei
judgement is less likely to be challenged by auditors, regulators and users of
their financial statements.
1.8 However, the Board has also received feedback that a lack of guidance on the
content and structure of the financial statements, particularly regarding
disclosures in the notes, contributes to these behavioural difficulties. Some state
that more, or better, guidance would help
ing about changes in behaviour.
Others state that IFRS Standards might discourage entities from using thei
judgement, pointing to the following issues:
(a) some Standards lack clear disclosure objectives, making the purpose of
some disclosure requirements unclear. This makes it difficult for entities
to apply judgement in deciding what information to disclose.
(b) the long lists of prescriptive disclosure requirements reinforce the
perception that financial statements are compliance documents.
Entities therefore automatically include information that is specifically
equired by a Standard, rather than tailoring disclosures to thei
circumstances and considering whether to disclose any additional
information.
The need for principles of disclosure
1.9 Many stakeholders have suggested that the Board responds to the concerns
described in paragraphs 1.5−1.8 by developing a set of disclosure principles
(sometimes refe
ed to by stakeholders as a ‘disclosure framework’)9 to:
(a) help entities apply better judgement about disclosures and communicate
information more effectively;
(b) improve the effectiveness of disclosures for the primary users of the
financial statements; and
(c) help the Board improve disclosure requirements in IFRS Standards.
1.10 The Board agrees that a set of disclosure principles could help to address the
disclosure problem. However, to improve the effectiveness of disclosures in the
financial statements, those principles need to be accompanied by a change in
the behaviour of parties that are described in paragraph 1.7.
The objective of this project
1.11 This Principles of Disclosure project focuses on identifying and bette
understanding disclosure issues, and developing new or clarifying existing
disclosure principles to address those issues. A set of disclosure principles could
ange from high level concepts—for example, overall principles of effective
communication or a basis for developing disclosure objectives and requirements
(centralised disclosure objectives)—to general requirements for disclosing
information. The principles would build on some of the existing requirements
9 This Discussion Paper does not use the term ‘disclosure framework’ because it might cause
confusion with the Conceptual Framework for financial reporting (Conceptual Framework).
DISCUSSION PAPER—MARCH 2017
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in IAS 1 and on the concepts being developed in the Board’s project to revise the
existing Conceptual Framework for Financial Reporting (the Conceptual
Framework (2010)).
1.12 Consistent with the objective of general purpose financial reporting described in
the Conceptual Framework (2010), and the Board’s Conceptual Framework project,
the Board is focusing on improving the effectiveness of disclosures for the
primary users of the financial statements. The primary users of financial
statements are existing and potential investors, lenders and other creditors who
cannot require entities to provide information directly to them and must rely on
general purpose financial statements for much of the financial information they
need. The Board recognises that a wide range of parties might be interested in
disclosures in financial statements. However, setting out a primary user group
provides an important focus in developing disclosure principles. The Board
observes that many other users will be served well by the same disclosure
principles.
1.13 The Principles of Disclosure project is likely to result either in amendments to
IAS 1 or in the creation of a new general disclosure standard to build on and
eplace the parts of IAS 1 that cover disclosures in the financial statements. The
project might also result in the development of some non-mandatory guidance.
For ease of reference, this Discussion Paper uses the term ‘general disclosure
standard’ to refer to both possible outcomes, ie either amendments to IAS 1 or a
new general disclosure standard that would replace parts of IAS 1. This project
covers disclosures in the financial statements and therefore focuses primarily on
the content of the notes. The parts of IAS 1 that cover the structure and content
of the primary financial statements will be considered in a separate project (see
paragraph 1.17(a)).10
The objective of this Discussion Pape
1.14 This Discussion Paper describes, and seeks stakeholders’ views about:
(a) disclosure issues identified through the activities in paragraph 1.3 and
the Board’s other outreach during this project; and
(b) approaches to address these issues, including the Board’s preliminary
views when provided.
The Board also seeks views on additional disclosure issues to address in this
project.
10 In some cases disclosure requirements provide flexibility for an entity either to present information
in the primary financial statements or to disclose it in the notes. These requirements may be
affected by both projects.
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation15
Interactions with the Board’s other projects
Figure 1.2—The Disclosure Initiative and related projects
Projects within Board’s Better Communication theme
Disclosure Initiative
Amendments
to IAS 1
to remove
a
iers to
the exercise
of judgement
(paragraph
1.15(a))
Amendments
to IAS 7 to
improve
disclosure
of liabilities
from fi nancing
activities
(paragraph
1.15(b))
Guidance
on making
materiality
judgements
(paragraph
1.16(a))
Clarifying
the defi nition
of material
(paragraph
1.16(b))
Principles of
Disclosure
(this project)
Standards-
level Review
of Disclosures
(paragraph
1.16(c))
Primary
Financial
Statements
(paragraph
1.17(a))
Conceptual
Framework
(paragraph
1.17(b))
Completed projects Research projects
Materiality
implementation
projects
Related projects
Projects within the Disclosure Initiative
1.15 The Board has already completed two projects that address aspects of the
disclosure problem:
(a) in December 2014, the Board published Disclosure Initiative (Amendments
to IAS 1). These na
ow-scope amendments clarified some of the
equirements in IAS 1 to emphasise that entities should apply judgement
when determining what information to disclose in their financial
statements, and where, and in what order, the information should be
provided. In particular, the amendments clarified the requirements in
IAS 1 for materiality, order of the notes, subtotals in the primary
financial statements and disclosure of accounting policies to address
some of the concerns raised during the activities described in
paragraph 1.3. This Discussion Paper refers to these amendments when
discussing related topics. The amendments are effective for annual
periods beginning on or after 1 January 2016.
(b) in January 2016 the Board published Disclosure Initiative (Amendments to
IAS 7). The amendments to IAS 7 Statement of Cash Flows require disclosure
of changes in liabilities arising from financing activities. The
amendments are effective for annual periods beginning on or afte
1 January 2017.
1.16 There are cu
ently three other projects within the Disclosure Initiative linked
to this project that address the disclosure problem:
(a) the Materiality Practice Statement project: the disclosure of ‘not
enough relevant information’ and ‘i
elevant information’ in the
financial statements has been identified as part of the disclosure
DISCUSSION PAPER—MARCH 2017
� IFRS Foundation 16
problem (see paragraph 1.5).11 To address these concerns, the Board is
finalising non-mandatory guidance in the form of a Practice Statement
to help entities make judgements about whether information is material
when preparing financial statements. In October 2015 the Board
published an Exposure Draft: IFRS Practice Statement Application of
Materiality to Financial Statements. The Board has discussed the feedback
eceived on that Exposure Draft and plans to publish a final Practice
Statement in June 2017.
(b) the Definition of Material project: the Board proposes to refine the
definition of ‘material’ and clarify its application. The Board expects to
issue an Exposure Draft containing these proposals together with the
Materiality Practice Statement.
(c) The Standards-level Review of Disclosures project: the objective is to
consider whether to make targeted improvements to disclosure
equirements in existing Standards and to develop guidance for the
Board to use when developing disclosure requirements in new and
amended Standards. This research project will be informed by the
disclosure principles developed in this project and by the feedback
eceived on this Discussion Paper.
Projects outside the Disclosure Initiative
1.17 This project interacts closely with two of the Board’s other projects outside the
Disclosure Initiative:
(a) the Primary Financial Statements project: the objective of this
esearch project is to examine possible changes to the structure and
content of the primary financial statements. It will be partially informed
y the feedback received on this Discussion Paper.
(b) the Conceptual Framework project: the Conceptual Framework (2010)
describes the objective of, and the concepts for, general purpose
financial reporting. The purpose of the Conceptual Framework project is
to provide a more complete, clear and updated set of concepts, including
those on the presentation and disclosure of financial information. In
May 2015 the Board published an Exposure Draft of a revised Conceptual
Framework for financial reporting (the Conceptual Framework Exposure Draft).
The revised Conceptual Framework is expected to be published in 2017. The
suggestions in this Discussion Paper utilise some of the concepts
discussed in the Conceptual Framework project. This Discussion Pape
efers to the proposals in the Conceptual Framework Exposure Draft, rathe
than the Conceptual Framework (2010), because these proposals reflect the
Board’s tentative decisions to update the Conceptual Framework (2010).
1.18 Further information about all of the Board’s projects is available on our website:
http:
www.ifrs.org/Cu
ent-Projects/IASB-Projects/Pages/IASB-Work-Plan.aspx.
11 Paragraph 2.11 of the Conceptual Framework Exposure Draft states that ‘…materiality is an
entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which
the information relates in the context of an individual entity’s financial report’.
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation17
Questions for respondents
Question 1
Paragraphs 1.5–1.8 describe the disclosure problem and provide an
explanation of its causes.
(a) Do you agree with this description of the disclosure problem and its
causes? Why or why not? Do you think there are other factors
contributing to the disclosure problem?
(b) Do you agree that the development of disclosure principles in a
general disclosure standard (ie either in amendments to IAS 1 or in a
new general disclosure standard) would address the disclosure
problem? Why or why not?
Question 2
Sections 2–7 discuss specific disclosure issues that have been identified by
the Board and provide the Board’s preliminary views on how to address these
issues.
Are there any other disclosure issues that the Board has not identified in this
Discussion Paper that you think should be addressed as part of this Principles
of Disclosure project? What are they and why do you think they should be
addressed?
DISCUSSION PAPER—MARCH 2017
� IFRS Foundation 18
Section 2—Principles of effective communication
2.1 This section discusses principles of effective communication that entities should
apply when preparing financial statements. These principles could be included
either in a general disclosure standard or in non-mandatory guidance, or in a
combination of both.
Cu
ent proposals in other documents
2.2 In paragraphs 7.16–7.18 of the Conceptual Framework Exposure Draft the Board
proposes that the revised Conceptual Framework should specify the following
presentation and disclosure objectives and principles:
7.16 Including specific presentation and disclosure objectives in a Standard
enables an entity to identify relevant information and decide how to
communicate that information in the most efficient and effective
manner.
7.17 In setting presentation and disclosure requirements, an appropriate
alance is needed between:
(a) giving entities the flexibility to provide relevant information
that faithfully represents the entity’s assets and liabilities, and
the transactions and other events of the period; and
(b) requiring information that is comparable among entities and
across reporting periods.
7.18 Efficient and effective communication of information also requires
consideration of the following principles:
(a) entity-specific information is more useful than ‘boilerplate’
language and is more useful than information that is readily
available outside the financial statements; and
(b) duplication of information in different parts of the financial
statements is usually unnecessary and makes financial
statements less understandable.
What is the issue?
2.3 When information in the financial statements is communicated ineffectively,
users might have difficulty understanding it, and therefore need to spend more
time analysing the financial statements. Ineffective communication might also
cause users to overlook relevant information or fail to identify relationships
etween pieces of information in different parts of the financial statements.
2.4 The Board has identified the following examples of ineffective communication
in financial statements:
(a) use of generic or ‘boilerplate’ descriptions—for example, copying
equirements directly from IFRS Standards without tailoring them to
explain how the entity applies those requirements to its own
circumstances;
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation19
(b) use of unclear descriptions—for example, use of technical jargon without
explaining the terms or use of descriptions that provide an incomplete
explanation because they assume a level of understanding that users are
unlikely to have;
(c) poor organisation of information in the financial statements—fo
example, inappropriate grouping of information or not providing a
contents page or other navigation aids;
(d) unclear linkage between related pieces of information in different parts
of the financial statements—for example, scattering information about
assets that are pledged as security for bo
owings across several note
disclosures without providing cross-references or other links between
those disclosures;
(e) unnecessary duplication of information—for example, when the note
disclosure for inventories repeats the information in the statement of
financial position without adding further information;
(f) needlessly disclosing information in a format that is inconsistent with
industry practice or changing the way information is disclosed in the
financial statements from period to period without considering that this
makes it difficult for users of financial statements to make comparisons
of that information with other entities or between reporting periods;
(g) using na
ative disclosure when a table would be more effective; and
(h) omitting material information or including immaterial information that
might obscure material information.12
Approaches to addressing the issue
2.5 This subsection:
(a) identifies principles of effective communication (paragraphs 2.6–2.11);
(b) considers including such principles in a general disclosure standard o
in non-mandatory guidance (paragraphs 2.12–2.15); and
(c) discusses guidance on the use of formatting in the financial statements
(paragraphs 2.16–2.23).
Principles of effective communication
2.6 On the basis of the feedback it has received, the Board’s preliminary view is that
it should develop a set of principles to help entities communicate information
more effectively in the financial statements. The Board’s preliminary view is
also that these principles should consist of the following seven principles in
(a)–(g).
The information provided should be:
12 In Section 1, ‘not enough relevant information’ and ‘i
elevant information’ have been highlighted
separately from ‘ineffective communication’ as concerns comprising the ‘disclosure problem’ (see
paragraph 1.5), but they are also a form of ineffective communication. IFRS Standards already
describe materiality (see paragraph 7 of IAS 1) and so this is not considered in the principles
discussed in this section.
DISCUSSION PAPER—MARCH 2017
� IFRS Foundation 20
(a) entity-specific, since information tailored to an entity’s own
circumstances is more useful than generic, ‘boilerplate’ language o
information that is readily available outside the financial statements;
(b) described as simply and directly as possible without a loss of material
information and without unnecessarily increasing the length of the
financial statements;
(c) organised in a way that highlights important matters—this includes
providing disclosures in an appropriate order and emphasising the
important matters within them;
(d) linked when relevant to other information in the financial statements o
to other parts of the annual report (see Section 4 Location of information) to
highlight relationships between pieces of information and improve
navigation through the financial statements;
(e) not duplicated unnecessarily in different parts of the financial
statements or the annual report;
(f) provided in a way that optimises comparability among entities and
across reporting periods without compromising the usefulness of the
information; and
(g) provided in a format that is appropriate for that type of information—fo
example, lists can be used to
eak up long na
ative text, and tables may
e preferable for data-intensive information, such as reconciliations,
maturity analysis etc.
The Board observes that an entity might need to make a trade-off between some
of these principles when preparing its financial statements. For example, while
tailoring disclosures to an entity’s own circumstances can help to ensure that
information is relevant and easier for users of the financial statements to
understand, it might reduce comparability and consistency between entities and
periods. The Board recommends that an entity use judgement when applying
these principles in order to maximise the usefulness of the information for users
of the financial statements.
2.7 The principles listed in paragraphs 2.6(a)–(f) were included in the Discussion
Paper A Review of the Conceptual Framework for Financial Reporting (the Conceptual
Framework Discussion Paper).13 Many respondents to the Conceptual Framework
Discussion Paper agreed with including them in the revised Conceptual
Framework. However, some respondents suggested that some or all of those
principles would be better placed in a Standard. The Board observes that some
of those principles focus more on the preparation of financial statements than
on underlying concepts. Accordingly, while developing the Conceptual Framework
Exposure Draft, the Board proposed including in the revised Conceptual Framework
only communication principles that also describe the underlying concepts (see
paragraph 2.2).14
13 See paragraph 7.50 of the Conceptual Framework Discussion Paper.
14 See paragraphs BC7.19 and BC7.22 of the Basis for Conclusion accompanying the Conceptual
Framework Exposure Draft.
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation21
2.8 The Board’s preliminary views are:
(a) that all of the principles in paragraphs 2.6(a)–(f) are principles of
effective communication that should be applied when preparing
financial statements; and
(b) there should also be a principle on formatting (paragraph 2.6(g)) for the
easons explained in paragraphs 2.17–2.19.
2.9 The Board also discussed the principle of cohesiveness developed in its previous
Financial Statement Presentation project. That principle was described as
follows:15
An entity shall present information in its financial statements so that the
elationship among items across the financial statements is clear.
To present a cohesive set of financial statements, an entity shall present
disaggregated information in the sections, categories and subcategories in the
statements of financial position, comprehensive income and cash flows in a
manner that is consistent across those three statements.
2.10 During that project there was wide support, particularly among users of
financial statements, for the general idea that information should be presented
in a way that makes the relationship between items across the financial
statements clear. However, the specific way in which the Board proposed
applying cohesiveness—namely, in conjunction with disaggregation of line
items—raised concerns, particularly from entities that prepare financial
statements.
2.11 The Board is not proposing to introduce such a principle of cohesiveness as part
of this project. The Board suggests linking pieces of information in financial
statements when it helps users of the financial statements to understand the
elationship between them and to navigate the financial statements. The
principle in paragraph 2.6(d) covers this point.
Inclusion of principles in a general disclosure standard or in
non-mandatory guidance
2.12 The Board has not yet formed a preliminary view on whether the principles of
effective communication listed in paragraph 2.6 should be:
(a) described in non-mandatory guidance (paragraph 2.13); o
(b) prescribed in a general disclosure standard (paragraphs 2.14–2.15).
Non-mandatory guidance
2.13 Some Board members see the principles of effective communication as
educational in nature. They observe that the principles would be difficult to
enforce and audit, and therefore it would not be appropriate to include them in
a Standard. Furthermore, they observe that if the principles are included in
15 See paragraphs 57–58 of the Staff Draft of Exposure Draft Financial Statement Presentation, July 2010
(http:
www.ifrs.org/Cu
ent-Projects/IASB-Projects/Financial-Statement-Presentation/Phase-B/Pages/Staff-draft-of-proposed-
standard.aspx).
DISCUSSION PAPER—MARCH 2017
� IFRS Foundation 22
non-mandatory guidance, the Board would be able to combine the principles
with practical guidance—for instance, including examples of their application.
Non-mandatory guidance could be:
(a) in the form of illustrative examples or implementation guidance that
accompany, but do not form part of, the general disclosure standard;
(b) in the form of a Practice Statement that does not accompany a specific
Standard; o
(c) provided as separate educational material, for example, made available
on the IFRS Foundation’s website.
Non-mandatory guidance in (a) and (b) would be included in Part B of the IFRS
Bound Volume and subject to full due process. Educational material in (c) would
e subject to due process of a more limited nature.
General disclosure standard
2.14 Other Board members suggest that the principles of effective communication
should be made mandatory by inclusion in a general disclosure standard
ecause of their importance in addressing the disclosure problem. Including
principles in a Standard would give them more authority. If they are included
in a general disclosure standard, the principles would also remain easily
accessible, whereas they might be more easily overlooked in non-mandatory
guidance.
2.15 Some Board members observe that communication principles could be
considered an extension of the fundamental characteristics of relevance and
faithful representation. Although these fundamental characteristics are
described in the Conceptual Framework (2010) rather than in IFRS Standards, they
are refe
ed to in IAS 1 in the description of a fair presentation.16 In line with
this, some Board members suggest that including the principles of effective
communication in a general disclosure standard would be appropriate.
Furthermore, they observe that paragraphs 113–114 of IAS 1 already set out
equirements on the systematic ordering or grouping of the notes that
incorporate features of the principles in paragraphs 2.6(c) and (d).
Provision of guidance on formatting
2.16 This subsection considers the following questions:
(a) why is the Board considering developing guidance on formatting
(paragraphs 2.17–2.19)?
(b) what should the guidance cover (paragraphs 2.20–2.22)?
(c) should guidance on formatting be included in a general disclosure
standard (paragraph 2.23)?
Why is the Board considering developing guidance on formatting?
2.17 The Board has received feedback from some stakeholders, including users of
financial statements, that more effective use of formatting would improve how
16 Paragraphs 15 and 17(b) of IAS 1, for example, refer to these characteristics.
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation23
entities communicate information. For example, some said that more frequent
use of tables and graphs, when appropriate, helps users of financial statements
to understand and compare information quickly. The Board received furthe
feedback that some entities are uncertain whether some formats, for example,
graphs, can be used. Several organisations in the financial services industries
have recently published reports that provide guidance on the use of tabula
formats for disclosures.17 Furthermore, in some of the more recent IFRS
Standards, the Board has stated that it is a requirement for some disclosures to
e made in a tabular format unless another format is more appropriate.18
2.18 For these reasons, the Board’s preliminary view is that use of formatting should
e included as one of the principles of effective communication in
paragraph 2.6. The Board observes, however, that it would generally be
inappropriate for IFRS Standards to prescribe a specific format for a particula
disclosure requirement. The appropriate format depends on entity-specific
factors, as well as on the type of information being disclosed. For example:
(a) if an entity allocates goodwill to several cash-generating units fo
impairment testing applying paragraph 80 of IAS 36 Impairment of Assets,
it might be appropriate to show the allocations in a tabular format; but
(b) if an entity allocates all goodwill to a single cash-generating unit, a
na
ative explanation might be more appropriate than a table.
2.19 Nevertheless, on the basis of both the feedback it has received and the trend
towards fostering better use of tables described in paragraph 2.17, the Board’s
preliminary view is that it should develop more detailed guidance on using
formatting in the financial statements. The Board suggests that this guidance
could help to improve the effectiveness of information communicated in the
notes.
What should the guidance cover?
2.20 The Board has identified the following areas that the guidance might cover,
along the lines discussed in paragraphs 2.21–2.22:
(a) types of formats;
(b) when one particular format is more appropriate than another; and
(c) illustrative examples.
2.21 Some formats can make particular types of information disclosed in the
financial statements easier to read, analyse and understand. Appropriate
formatting to consider includes na
ative text, lists, tables, graphs and
diagrams, as discussed in the table in paragraph 2.22. Text features such as font
type and size, as well as the use of bold type, underlining and colour, can be used
to assist understanding or add emphasis to specific information. Advances in
technology might create further ways in which to present and disclose
17 Examples of such reports are those of the Enhanced Disclosure Task Force (EDTF), the European
Banking Authority (EBA) and the Basel Committee on Banking Supervision (BCBS).
18 See, for example, paragraphs 13C and 24A–24C of IFRS 7 Financial Instruments: Disclosure,
paragraphs 28 and 29 of IFRS 12 Disclosure of Interests in Other Entities and paragraph 99 of IFRS 13 Fai
Value Measurement.
DISCUSSION PAPER—MARCH 2017
� IFRS Foundation 24
information in financial statements. For example, content bars and text-search
functions within an online electronic report might help users find information
more quickly. Structured electronic data may use other features to facilitate
understanding of the information. Such features may include a taxonomy data
model or the use of formulae to express data relationships.
2.22 The following table explains and illustrates some common formatting types:
Table 2.1—Common formatting types
Formatting Lists Tables Na
ative text Graphs and charts
Description A list organises
items consecutively.
A table organises
information in rows
and columns.
A na
ative text is a
written account
of events.
Graphs and charts
summarise
numerical data and
give them shape
and form. Types
include line graphs,
ar charts and pie
charts.
When might
the format be
appropriate
to use
Lists can be used to
eak up long
na
ative text, rank
items or highlight
elationships
etween items.
Tabular formats are
appropriate fo
presenting:
(a) information that
is designed fo
comparison;
(b) values o
amounts;
(c) large amounts of
data; and/o
(d) information that
needs to be
described from
different
perspectives—fo
example, data ove
a number of
eporting periods.
Na
ative is
appropriate if:
(a) the aim is to
explain detailed
qualitative aspects,
or to describe an
event or transaction,
ather than to
present large
amounts of
quantitative data;
and/o
(b) the aim is to
explain quantitative
data or the
elationship
etween items of
data—for example,
to explain significant
changes in how
numbers in a table
were measured.
A graph or chart
can be used:
(a) to simplify
complex data
and/or highlight
patterns and trends
in the data,
provided that they
display data fairly;
and/o
(b) supplement data
provided in anothe
format, such as a
table.
continued...
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation25
...continued
Formatting Lists Tables Na
ative text Graphs and charts
Examples of
when the
format might
e used
For disclosing an
entity’s subsidiaries
and other related
parties.
For disclosing the
various risks to
which an entity is
exposed.
For reconciliations
of balances.
For maturity
analysis.
For sensitivity
analysis.
For showing useful
lives of assets.
For disaggregation
of line items in the
primary financial
statements.
For describing
accounting policies.
For describing
objectives, policies
and processes fo
managing risk and
the methods used to
measure the risk.
For showing sales
figures by
geographical area
or business
segment.
For showing
geographical
concentration and
amount of credit
isk.
Graphs and charts
are often more
commonly used in
other kinds of
eports, such as
management
commentary, than
in the financial
statements.
Should guidance on formatting be included in a general disclosure
standard?
2.23 The Board’s preliminary view is that the type of guidance described in
paragraphs 2.20–2.22 would be more suitable in non-mandatory guidance than
in a general disclosure standard.
DISCUSSION PAPER—MARCH 2017
� IFRS Foundation 26
Summary of the Board’s preliminary views and questions
for respondents
Question 3
The Board’s preliminary view is that a set of principles of effective
communication that entities should apply when preparing the financial
statements as described in paragraph 2.6 should be developed. The Board
has not reached a view on whether the principles of effective communication
should be prescribed in a general disclosure standard or described in
non-mandatory guidance.
The Board is also of the preliminary view that it should develop
non-mandatory guidance on the use of formatting in the financial
statements that builds on the guidance outlined in paragraphs 2.20–2.22.
(a) Do you agree that the Board should develop principles of effective
communication that entities should apply when preparing the
financial statements? Why or why not?
(b) Do you agree with the principles listed in paragraph 2.6? Why or why
not? If not, what alternative(s) do you suggest, and why?
(c) Do you think that principles of effective communication that entities
should apply when preparing the financial statements should be
prescribed in a general disclosure standard or issued as
non-mandatory guidance?
(d) Do you think that non-mandatory guidance on the use of formatting
in the financial statements should be developed? Why or why not?
If you support the issuance of non-mandatory guidance in Question 3(c)
and/or (d), please specify the form of non-mandatory guidance you suggest
(see paragraph 2.13(a)–(c)) and give your reasoning.
DISCLOSURE INITIATIVE—PRINCIPLES OF DISCLOSURE
� IFRS Foundation27
Section 3—Roles of the primary financial statements and
the notes
3.1 This section discusses whether a general disclosure standard should describe the
oles of the different components of the financial statements and how those
oles meet the objective of financial statements. Such a description would guide
the Board and entities in determining the appropriate location of information in
the financial statements. This section:
(a) identifies, and considers the role of, the primary financial statements
and considers the implications of that role; and
(b) considers the role and the content of the notes.
Cu
ent requirements, guidance and proposals in othe
documents
3.2 Paragraph 3.4 of the Conceptual Framework Exposure Draft proposes the following
description of the objective of financial statements:19
…to provide information about an entity’s assets, liabilities, equity, income and
expenses that is useful to users of financial statements in assessing the prospects
for future net cash inflows to the entity and in assessing management’s
stewardship of the entity’s resources.
3.3 IAS 1 Presentation of Financial Statements specifies that a complete set of financial
statements comprises:20
(a) the following statements:
(i) statement of financial position;
(ii) statement(s) of profit or loss and other comprehensive income;
(iii) statement of changes in equity; and
(iv) statement of cash flows.
(b) notes, comprising significant accounting policies and other explanatory
information.
3.4 Neither the Conceptual Framework (2010) nor IFRS Standards consistently use a
specific term to refer to the set of statements listed in paragraph 3.3(a), nor do
they define their role in meeting the objective of financial statements.
3.5 Paragraph 7 of IAS 1 defines the notes as follows:
19 Paragraph 9 of IAS 1 states that ‘The objective of financial statements is to provide information
about the financial position, financial performance and cash flows of an entity that is useful to a
wide range of users in making economic decisions. Financial statements also show the results of
the management’s stewardship of the resources entrusted to it’. The Board will consider whether to
align the objective of financial statements in IAS 1 with the forthcoming revised Conceptual
Framework if it amends or replaces IAS 1 as part of this project.
20 Paragraph 10 of IAS 1 states that a complete set of financial statements comprises a statement of
financial position as at the end of the period, the statements listed in paragraph 3.3(a)(ii)–(iv) for the
period, comparative information in respect of the preceding period, a statement of financial
position at the beginning of the preceding period in certain circumstances, and notes.
DISCUSSION PAPER—MARCH 2017
� IFRS Foundation 28
Notes contain information in addition to that presented in the statement of
financial position, statement(s) of profit or loss and other comprehensive income,
statement of changes in equity and statement of cash flows. Notes provide
na
ative descriptions or disaggregations of items presented in those statements
and information about items that do not qualify for recognition in those
statements.
3.6 Paragraph 112 of IAS 1 states:
The notes shall:
(a) present information about the basis of preparation of the financial
statements and the specific accounting policies used…;
(b) disclose the information required by IFRSs that is not presented elsewhere
in the financial statements; and
(c) provide information that is not presented elsewhere in the financial
statements, but is relevant to an understanding of any of them.
3.7 The Conceptual Framework Exposure Draft proposes clarifying that the notes
include information about:21
(a) the nature of both recognised and unrecognised elements and about the
isks arising from them;
(b) the methods, assumptions and judgements, and changes in those
methods, assumptions and judgements, that affect the amounts
presented or disclosed;
(c) transactions and events that have occu
ed after the end of the reporting
period if such information is necessary to meet the objective of financial
statements described in paragraph 3.2;
(d) forward-looking information about likely or possible future transactions
and events, only if it provides relevant information about an entity’s
assets, liabilities and equity that existed at the end of, or during, the
period (even if they are unrecognised) or income and expenses for the
period; and
(e) comparative information about preceding periods.
What is the issue?
3.8 The Board received feedback that entities perceive the information in the
statements listed in paragraph 3.3(a) to be used more frequently and be subject
to more scrutiny from users, auditors and regulators than the information in
the notes.
3.9 The Board has received further feedback that some users of financial statements
analyse the information in the statements listed in paragraph 3.3(a) more closely
than they do with information in the notes. This feedback indicates that users’
decisions could be affected by whether entities present particular information
separately in those statements, rather than disclosing it solely in the notes. This
is supported by some academic research that provides evidence that some users
21 This list is a summary of paragraphs 7.3–7.7 of the Conceptual Framework Exposure Draft.
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of financial statements appear to react in different ways depending on how and
where information is presented or disclosed in the financial statements.22
3.10 The Board has also received feedback that entities find it difficult to exercise
judgement about what information should be presented in the statements listed
in paragraph 3.3(a) instead of being disclosed in the notes. In some cases, IFRS
Standards allow an entity to choose whether to provide information either in
those statements or in the notes. However, it appears that the following use of
terminology in IFRS Standards is contributing to these difficulties in exercising
judgement:
(a) there is no clear terminology used to distinguish between the statements
listed in paragraph 3.3(a) and the complete set of financial statements
described in paragraph 3.3, and so, in practice, a range of terms is used.
For example, both ‘face of the financial statements’ and ‘primary
financial statements’ are used for the statements listed in
paragraph 3.3(a). Some parties have said IFRS Standards are sometimes
unclear about whether the terms ‘financial statements’ and ‘statements’
efer to the complete set of financial statements or only to the
statements listed in paragraph 3.3(a). The term ‘statements’ is also used
to refer to other reports within the annual report—for example, to a
management commentary or risk report.23
(b) the term ‘present’ is often used in IFRS Standards to describe the
inclusion of information separately in the statements listed in
paragraph 3.3(a), whereas ‘disclose’ is often used to describe the
inclusion of information in the notes. Some IFRS Standards contain a
separate section titled ‘presentation’ that addresses presentation in the
statements listed in paragraph 3.3(a), and ‘disclosures’ that addresses
disclosures in the financial statements, which are usually provided in the
notes.24 The Board has received feedback that this is how the terms are
commonly understood in practice. Although IFRS Standards commonly
use these terms this way, they do not do so consistently.
Approaches to addressing the issue
3.11 This subsection covers the following:
(a) the use of the term ‘primary financial statements’ for the statements
listed in paragraph 3.3(a) (paragraphs 3.14–3.19);
(b) the role of such primary financial statements (paragraphs 3.20–3.23);
(c) the implications of that role (paragraph 3.24);
(d) the role and content of the notes (paragraphs 3.25–3.30); and
22 Some examples of such academic research are identified in Reporting Format Effects and the IASB
Conceptual Framework, Hopkins (Kelley School of Business, Indiana University, 2014) available at:
http:
www.ifrs.org/IFRS-Research/2014/Documents/Panel%20discussion%20-%20decision-useful%20
information2.pdf.
23 An example of this is paragraph 21B of IFRS 7 Financial Instruments: Disclosures.
24 In some cases disclosure requirements provide flexibility for an entity either to present information
in the primary financial statements or disclose it in the notes.
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(e) the use of the terms ‘present’ and ‘disclose’ (paragraphs 3.31–3.32).
3.12 This Discussion Paper does not discuss possible changes to the structure and
content of the primary financial statements. The Board has been performing
esearch into whether such changes are necessary in its separate Primary
Financial Statements project (see paragraph 1.17(a)).
3.13 In addition, this Discussion Paper does not discuss specific cases of when to
present particular information in the primary financial statements or when to
disclose it in the notes. The Board might consider, in its Standards-level Review
of Disclosures project (paragraph 1.16(c)), whether disclosure requirements
should explicitly require information to be presented in the primary financial
statements or in the notes.
Use of the term ‘primary financial statements’ for the statements
listed in paragraph 3.3(a)
3.14 To address the concerns raised about terminology in paragraph 3.10(a) and to
help with the drafting of IFRS Standards, the Board’s preliminary view is that a
consistent term should be specified to describe the statements listed in
paragraph 3.3(a).
3.15 The Board considered each of the following terms:
(a) primary financial statements;
(b) face of the financial statements;
(c) statements;
(d) set of statements;
(e) main financial statements; and
(f) summary statements.
3.16 The Board’s preliminary view is that the term ‘primary financial statements’ is
the best alternative of those listed in paragraph 3.15 for the following reasons:
(a) the term appears to be well understood and widely used. Some
espondents to the Conceptual Framework Exposure Draft urged the Board
to use this term because it is commonly used by the financial community
to refer to the statements listed in paragraph 3.3(a).
(b) the term is not cu
ently used for other purposes, for example, the term
‘statements’ might be confused with a complete set of financial
statements or other financial reports, such as management commentary,
as explained in paragraph 3.10(a).
(c) introducing a new term might create confusion, and it could take time
for stakeholders to accept and recognise its use.
3.17 Some stakeholders have concerns about using the term ‘primary financial
statements’ because they say it inaccurately implies that other information in
the financial statements is ‘secondary’ or less important. However, the Board
observes that it could mitigate these concerns by:
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� IFRS Foundation31
(a) stating that the term ‘primary’ does not intend to imply that the notes
are inferior, or that they provide secondary or less important
information. Rather they provide different information and have a
different role.
(b) explaining that the term ‘primary’ reflects the fact that the primary
financial statements are usually provided at the front of an entity’s
financial statements and that they are generally the starting point fo
analysis of those financial statements. This is because the primary
financial statements provide an overview of an entity’s assets, liabilities,
equity, income and expenses, and often the line items that they contain
help users of financial statements navigate to the supporting
information in the notes by acting as an index.
3.18 Some stakeholders disagree on which statements should constitute the primary
financial statements:
(a) some say that the primary financial statements should only consist of
the statement(s) of financial performance (ie the statement(s) presenting
profit or loss and other comprehensive income) and the statement of
financial position, because these statements provide a complete
summary of all recognised elements of the financial statements and
comprise items that meet the definitions of the elements.25
(b) some say that they should only consist of the statement(s) of financial
performance, the statement of financial position and the statement of
changes in equity. Some stakeholders have told the Board that this is
ecause the statement of cash flows is often not meaningful for financial
institutions.
(c) some say that they should only consist of the statement(s) of financial
performance, the statement of financial position and the statement of
cash flows.
(d) some say that they should consist of all the statements listed in
paragraph 3.3(a), together with operating segment information.
3.19 However, the Board’s preliminary view is that, in line with common practice and
understanding, the term ‘primary financial statements’ should be used for the
set of statements listed in paragraph 3.3(a).
The role of the primary financial statements
3.20 The Board considers that users of the financial statements pay more attention to
the primary financial statements than to the notes because:
(a) the primary financial statements are usually provided at the start of the
financial statements;
(b) the primary financial statements give an overview of an entity’s financial
position, financial performance, cash flows and changes in its equity and
can be used to identify areas that users might wish to investigate further;
25 Paragraph 4.3 of the Conceptual Framework Exposure Draft states that the elements of financial
statements are assets, liabilities, equity, income and expenses.
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(c) the primary financial statements are in a more standardised format than
the notes and can therefore be more easily used to make comparisons
etween entities;
(d) the information in the primary financial statements is sometimes
published earlier than some of the information in the notes—fo
example, earnings announcements and press releases sometimes
summarise that information and are issued prior to publication of the
financial statements as a whole; and
(e) the information in the primary financial statements is more likely to be
included in information collected and provided by data aggregators than
information in the notes.
3.21 The Board observes that the evidence that users of financial statements pay more
attention to the primary financial statements than to the notes implies that the
primary financial statements and the notes have different roles in meeting the
objective of financial statements. The Board suggests that defining the role of
the primary financial statements would:
(a) assist the Board in deciding what information to permit and what
information to require to be presented in the primary financial
statements; and
(b) help entities decide whether to present an item separately in a primary
financial statement, or whether to aggregate it with other items
included in the...