Better Communication in Financial Reporting

Better Communication in Financial Reporting

Better Communication in Financial Reporting is an IFRS.org initiative to focus financial reporting on users. There is a general view that financial reports have become too complex and difficult to read and that financial reporting tends to focus more on compliance than communication. See also narrative reporting as a discussion on alternative ways of reporting.

At the same time, users’ tolerance for sifting through information to find what they need continues to decline.

This has implications for the reputation of companies who fail to keep pace. A global study confirmed this trend, with the majority of analysts stating that the quality of reporting directly influenced their opinion of the quality of management.

To demonstrate what companies could do to make their financial report more relevant, there are several suggestions to ‘streamline’ the financial statements to reflect some of the best practices that have been emerging globally over the past few years. In particular:

  • Information is organized to clearly tell the story of financial performance and make critical information more prominent and easier to find.
  • Additional information is included where it is important for an understanding of the performance of the company. For example, we have included a summary of significant transactions and events as the first note to the financial statements even though this is not a required disclosure.

Improving disclosure effectiveness

Terms such as ’disclosure overload’ and ‘cutting the clutter’, and more precisely ‘disclosure effectiveness’, describe a problem in financial reporting that has become a priority issue for the International Accounting Standards Board (IASB or Board), local standard setters, and regulatory bodies. The growth and complexity of financial statement disclosure is also drawing significant attention from financial statement preparers, and more importantly, the users of financial statements.

Read more

IFRS 7 Other price risks Step-by-step

IFRS 7 Other price risks Step-by-step – Other price risks is part of the risk disclosures requirements under IFRS 7 Financial Instruments: Disclosures. Other price risks is part of market risk (the other main market risk categories being currency risk and interest rate risk) and is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer or by factors affecting all similar financial instruments traded in the market. IFRS 7 Other price risks Step-by-step

Management should disclose information … Read more

IFRS 7 Interest rate risk disclosure example

IFRS 7 Interest rate risk disclosure example – Interest rate risk is part of the risk disclosures requirements under IFRS 7 Financial Instruments: Disclosures. Interest rate risk is part of market risk (the other market risks being currency risk and other price risk) and is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. IFRS 7 Interest rate risk disclosure example

Management should disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period [IFRS 7 31]. The disclosures … Read more

IFRS 7 Comprehensive Risk disclosures

IFRS 7 Comprehensive Risk disclosures – Management should disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period [IFRS 7 31]. IFRS 7 Comprehensive Risk disclosures

IFRS 7 requires certain disclosures to be presented by category of an instrument based on the IFRS 9 recognition and measurement categories of financial instruments (previously the IAS 39 measurement categories). IFRS 7 Comprehensive Risk disclosures

Certain other disclosures are required by class of financial instrument. For those disclosures an entity must group its financial instruments into classes of similar instruments as appropriate to the nature of the … Read more

IFRS 7 Credit risk disclosures

IFRS 7 Credit risk disclosures – Credit risk is part of the risk disclosures requirements under IFRS 7 Financial Instruments: Disclosures.

Management should disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period [IFRS 7 31]. The disclosures require focus on the risks that arise from financial instruments and how they have been managed. These risks typically include, but are not limited to, credit risk, liquidity risk and market risk [IFRS 7 32].

Qualitative and quantitative disclosures are required. Management should therefore disclose, for each type of risk arising from financial instruments:… Read more

IFRS 7 Market risk disclosures

Market risk - The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.

Liquidity risk

Liquidity risk: The risk that an entity encounters difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash.