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:
Organised (important points highlighted)
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:
it is disclosed within the entity’s annual report
it makes the annual report as a whole more understandable
it is clearly cross referenced in financial statements
Can non‐IFRS information go within the financial statements?
Clearly identified as not being prepared in accordance with the Standards
Disclosed as non‐IFRS information
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:
Displayed with equal or less prominence than the totals/subtotals required by the Standards
Reconciled to the most directly comparable measures specified in the Standards
Neutral, free from error and clearly labelled
Classified, measured and presented consistently over time
Identified as to whether they form part of the financial statements and whether they have been audited
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
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
Category 2 — not in Category 1 but necessary to understand the ﬁnancial statements.
Category 3 - not in Categories 1 and 2 but is used in preparing the financial statements.