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Syllabus F. The Impact Of Changes In Accounting Regulations F1. Discussion Of Solutions To Current Issues In FR

F1c. Current Issue - The IASB’s Principles of Disclosure Initiative

Syllabus F1c)

Discuss the impact of current issues incorporate reporting including.

The following examples are relevant to the current syllabus.

1.   the revised Conceptual Framework for Financial Reporting
2.   Accounting policy changes
3.   Materiality in the context of financial reporting
4.   Defined benefit planamendments, curtailment or settlement
5.   Management commentary
6.   Developments in sustainability Reporting

Principles of Disclosure

In a nutshell, the disclosure problem is the perception that financial statements:
• do not provide enough relevant information
• include too much irrelevant information, and 
• communicate the information ineffectively.

At the heart of this is JUDGEMENT – deciding what to disclose and how to disclose it.

The IASB has decided to use Principles not checklists to help improve the effectiveness of disclosures.

Effective Communication should be:

  • Entity‐specific

  • Simple

  • Organised (important points highlighted)

  • Cross Referenced

Can Disclosures go outside the Financial Statements?

Firstly, make it clear that the ‘primary financial statements’ comprise the four statements 

So users understand ‘primary’ doesn't imply that the disclosures are 'secondary' to the Primary FS. Instead the disclosures provide DIFFERENT information 

Note: Information necessary to comply with the Standards can be disclosed outside the financial statements if:

  1. it is disclosed within the entity’s annual report

  2. it makes the annual report as a whole more understandable

  3. it is clearly cross referenced in financial statements

Can non‐IFRS information go within the financial statements?

  1. Clearly identified as not being prepared in accordance with the Standards

  2. Disclosed as non‐IFRS information

  3. Explained why the information is relevant and faithfully represented

Use of Alternative Performance Measures (APMs)

Presentation of APMs is ok but they should meet the following criteria:

  1. Displayed with equal or less prominence than the totals/subtotals required by the Standards

  2. Reconciled to the most directly comparable measures specified in the Standards

  3. Neutral, free from error and clearly labelled

  4. Classified, measured and presented consistently over time

  5. Identified as to whether they form part of the financial statements and whether they have been audited

  6. Accompanied by certain explanations and comparative information

Accounting Policy Disclosure

3 categories of accounting policies 

Categories 1 and 2: MUST be disclosed
Category 3: May be disclosed

  1. Category 1 - Those always necessary to understand the financial statements because:

    a) Relates to material items
    b) Is selected from alternatives in IFRSs;
    c) Reflects a change from a previous period;
    d) Requires use of significant judgements

  2. Category 2 — not in Category 1 but necessary to understand the financial statements.

  3. Category 3 - not in Categories 1 and 2 but is used in preparing the financial statements.