By Gary Kabureck, Member, International Accounting Standards Board
‘Financial statements need to communicate better’… was the essence of a pointed message the International Accounting Standards Board (Board) heard in early 2013. In response, our chair Hans Hoogervorst committed us to address, and resolve, what is colloquially referred to as ‘the disclosure problem’. From this sprung an integrated suite of related projects under an umbrella title, the ‘Disclosure Initiative’, and by 2016 Hans’ commitment had evolved into our unifying theme for the next five years: Better Communication in Financial Reporting.
Preparers define the disclosure problem as ‘too much irrelevant information’ (AKA disclosure overload) whereas investors see it more as ‘not enough relevant information’. Both groups agree that whatever is communicated is neither organised nor presented effectively. So…what to do?
As our journey began, it soon became obvious that materiality—how it is defined and how it is applied—was a major contributor to the problem. The Disclosure Initiative set out to, once and for all, comprehensively address the problems caused by how the concept of materiality is applied in practice. Embedded practices only change slowly so we knew this would be a multi-step endeavor. Here goes: