12 December 2012

FASB and CAQ: Forum observations summary on disclosure effectiveness

The forums were designed to encourage dialogue among a wide range of financial reporting stakeholders on improving the effectiveness of disclosures in notes to financial statements and other parts of the financial reporting package. The discussion focused on aspects of the FASB’s recent Invitation to Comment on a disclosure framework, as well as financial reporting issues beyond the scope of that document.

Forum participants—including financial statement preparers and users, corporate board and audit committee members, auditors, attorneys, regulators, standard setters and academics—provided insight and feedback on a number of topics, including:

• flexibility of disclosure requirements
• role of the notes
• disclosure relevance to investors and creditors
• effect on the assessment of future cash flows to the investor
• streamlined disclosure in the current environment
• prescriptive nature of current accounting guidance
• overlap of notes and Management’s Discussion and Analysis (MD&A)
• costs, benefits and incentives for change.

As demonstrated by the degree of engagement, the issue of greater financial statement disclosure effectiveness deserves careful consideration by the FASB and stakeholders. Participants generally thought that providing a benchmark for applying judgement on which financial statement disclosures to provide was desirable, but there were mixed views on whether to base the decision on relevance or to use the more familiar term, materiality, in order to achieve the desired objective.

Sophisticated analysts and users who are capable of analysing high volumes of disclosure did not express a significant interest in reducing the volume of disclosure, although other users who do not have that capability did support efforts to streamline. Moreover, there was general support for considering the entire financial report in efforts to improve disclosure effectiveness, and not just the notes to financial statements. Finally, participants encouraged using the flexibility available within the current disclosure regime to improve disclosure effectiveness while consideration of the disclosure framework proceeds.

Press release

Forum observations summary

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