Accounting Standards Board Report Puts Stress on Capital Management Disclosures

Steven Bobson, Europe & Americas Editor
December 14, 2010 /

The Accounting Standards Board (ASB) has released a new report providing insights into the significance of disclosing financial capital management as a form of transparency, which, according to ASB chairman Roger Marshall, enables companies to prepare should a liquidity crisis take place.

The report serves to respond to the call of investors who said they want to know the amount of capital needed by a company and the deficit or surplus that goes with it.

The ASB noted that the existence of good disclosure practices of capital management is already observable, except that it is oftentimes superseded by the traditional “boilerplate text” causing the companies to miss the most important part of disclosing it.

Marshall said enough capital “buffers significant economic shocks,” which makes it pressing for the board to include capital management issues in its agenda. This is particularly timely especially in the midst of reduced government spending facing the business and other sectors, he added.

The report noted the “enlightened analysis” made on the annual reports of a few companies, elaborating the sources of their capital and how they incorporated it with their growth strategies, mergers and acquisitions, share buy backs and dividends.

On the other hand, ASB observed that the larger portion of the companies being reviewed remained steadfast with their conventional practices in disclosing capital management. ASB said these companies failed to incorporate with their financial capital management disclosures some aspects of managing and assessing capital in the long run.

ASB said providing detailed disclosures of capital management are a “good practice” to mitigate surprises brought about by the uncertain economic environment since they involve explanations of future options like shared buy back program or rights issue.

The Companies Act of 2006 requires informative review of capital management disclosures of businesses.

 

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