The International Accounting Standards Board (IASB) on Thursday issued amendments to a standard focused on improving presentation and disclosure in financial reports.
The amendments are designed to give preparers the ability to use professional judgment when preparing financial statements.
“There is a real appetite for improving disclosure in financial reporting,” IASB Chairman Hans Hoogervorst said in a news release. “While problems with disclosures cannot be solved by the IASB alone, we do have an important part to play.”
The amendments to IAS 1, Presentation of Financial Statements, are part of the IASB’s Disclosure Initiative, a broader project started to improve disclosure requirements.
The amendments, according to the news release, make clear that:
- Materiality applies to the whole of financial statements;
- The inclusion of immaterial information can inhibit the usefulness of financial disclosures; and
- Companies should use professional judgment in determining where and in what order information is presented in financial disclosures.
The amendments to IAS 1 can be applied now, but they don’t become mandatory until annual periods beginning on or after Jan. 1, 2016.
The IASB also released an exposure draft of proposed amendments to IAS 7, Statement of Cash Flows. The comment period for the exposure draft lasts until April 17. The proposal “responds to requests from investors for improved disclosures about an entity’s financing activities and its cash and cash equivalents balances,” the IASB news release said.
The U.K.’s Financial Reporting Council (FRC) welcomed the publication of the amendments to IAS 1 and the draft amendments to IAS 7 in a statement posted on its website, calling them the first step in the development of a disclosure framework. The FRC has previously called for disclosures to focus on relevant information and to avoid boilerplate language.
Streamlining disclosures is a topic on the minds of accounting bodies in other parts of the world. FASB, for instance, is building a framework intended to reduce unnecessary disclosures. And a report issued through the Initiative on Rethinking Financial Disclosure issued 11 recommendations for more making corporate disclosures more effective.
—Neil Amato (email@example.com) is a JofA senior editor.