09 November 2017

IASB's Hoogervorst: Speech on the role of the IASB in wider corporate reporting

The Chair of the IASB, Hans Hoogervorst, discussed how to improve communication in financial reporting, implementation support for IFRS, and the role of the IASB in wider corporate reporting.

Mr Hoogervorst covered three topics in his remarks - the central work stream of the IASB, namely: Better Communication in Financial Reporting; implementation and application of IFRS and the IASB’s role in wider corporate reporting—in other words, reporting that goes beyond the financial statements.

Mr Hoogervorst said: “The IASB has created some big Standards over the past few years: IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, IFRS 16 Leases and IFRS 17 Insurance Contracts. Companies around the world are very busy implementing these important and far-reaching standards. We are aware that our constituents need time to digest these big changes and that we cannot keep on churning out new, big Standards that revolutionise how companies report. The world needs a period of calm.

However, this period of calm does not mean that the IASB can go on a prolonged vacation. While we feel we now have a good suite of Standards that cover the vast majority of transactions, it is equally clear that there is still ample scope for improvements in financial reporting.

The central theme of our current work plan is Better Communication in Financial Reporting. This theme will guide our work in the coming years. As the name indicates, the purpose of this work stream is to improve the communication effectiveness of financial reporting. We must recognise that companies sometimes experience financial reporting as too much of a compliance exercise. Investors sometimes believe that the financial statements depict performance in an insufficiently clear manner.”

He added: “Today, we require companies to report revenue and profit or loss in the income statement but not much else. We know that investors would like to see more structured and disaggregated information.

The IASB’s current discussions have focused on whether we should define EBIT, earnings before interest and tax. EBIT is a subtotal that is close to operating income and shows the performance of a company separate from financing. It is a subtotal that is reported by most businesses, but we know that one company’s EBIT can differ quite a lot from another company’s EBIT. We are therefore looking at the possibility of defining EBIT (or something similar) so that it becomes a comparable and transparent figure.

Companies also like to present earnings subtotals that are adjusted for infrequently occurring items. These adjustments can be useful to gain insight into the persistence of earnings, but they tend to give a rosy picture of a company’s performance. We will therefore look at developing guidance for the presentation of such adjusted earnings. For example, we could determine that if a company wants to list an expense as infrequent, this must be complemented by multi-year disclosures.”

Mr Hoogervorst stated: “Let me be clear; we do not plan to get into environmental and sustainability reporting. That is not our area of expertise. There are many other players. Our remit is, and will remain, financial reporting—with focus on the participants in the capital markets. That is investors and potential creditors.”

Full speech

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