EFRAG, ANC and FRC Issue Discussion Paper
The European Financial Reporting Advisory Group (EFRAG), the Autorité des Normes Comptables (ANC) in France, and the Financial Reporting Council (FRC) in the United Kingdom have published a Discussion Paper, ‘Towards a Disclosure Framework for the Notes’. The Discussion Paper is the result of a joint project between EFRAG, the ANC and the FRC, as part of EFRAG’s proactive agenda.
Many commentators have indicated that the notes to the financial statements have grown considerably over the years as the International Accounting Standards Board (IASB) keeps adding to existing disclosure requirements in International Financial Reporting Standards to support more transparency.
As a result, the notes have become so extensive that investors and creditors can no longer ‘see the wood for the trees’. A major concern around the world is that the notes to the financial statements have become a real burden and it is not clear that they serve their intended purpose which is to help users understand the numbers in the financial statements.
Rather than just re-state the problem, the Discussion Paper sets out some key principles that EFRAG, the ANC and the FRC consider essential to design of an effective Disclosure Framework. Such principles are necessary to change how disclosure requirements are set to free preparers, auditors and regulators from the detailed compliance exercise that they currently experience.
The proposals in the DP set out a decision framework for both the standard setter in setting the requirements and for preparers, auditors and regulators in applying those requirements, placing emphasis on the need to improve the communication to investors, creditors and others who rely on the financial statements to make decisions. The work ahead is challenging for all involved, and the Discussion Paper aims at contributing to the work of the IASB in the development of a much awaited Disclosure Framework.
Efforts to be undertaken are not limited to IFRS, as shows the cooperation EFRAG, ANC and FRC have had with the FASB who have been undertaking a similar project. It is hoped that the Discussion Paper leads to a constructive debate within Europe and elsewhere and all that have an interest in more effective and streamlined disclosures in financial reporting are strongly encouraged to respond to the invitation for comments.
The Discussion Paper is open for comment until 31 December 2012.