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.

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IAS 1 Presentation of financial statements

IAS 1 Presentation of financial statements

Objective

IAS 1 Presentation of financial statements provides the basis for presentation of general-purpose financial statements, to ensure:

  • comparability both with the entity’s financial statements of previous periods, and
  • with the financial statements of other entities.

To achieve this objective, IAS 1 sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.

The illustration below shows an overview of the purpose, overall considerations, and components of financial statements.

IAS 1 Technical summary

Fundamental concepts/conventions for FS

Fair presentation and compliance with International Financial Reporting Standards (IFRSs)

  • Financial statements shall present fairly the financial position, financial performance and cash flows of an entity
  • An entity whose financial statements
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Components of Financial Statements

Components of Financial Statements – The following comprise a complete set of financial statements:

  • a statement of financial position,
  • a statement of profit or loss and other comprehensive income, presented either:
    • in a single statement that included all components of profit or loss and other comprehensive income, or
    • in the form of two separate statements:
      • one displaying components of profit or loss,
      • immediately preceding another statement beginning with profit or loss and displaying components of other comprehensive income,
  • a statement of changes in equity,
  • a statement of cash flows,
  • notes to the financial statements, comprising significant accounting policies and other explanatory information,
  • a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following:
    • a change in accounting policy,
    • a correction of an error, or
    • a reclassification of items in the financial statements, and
    • comparative information in respect of the preceding period.

Components of Financial Statements Components of Financial Statements

Components of Financial Statements

a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following

a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following a (third) statement of financial position as at the beginning of the preceding period where an entity restates comparative information following

Components of Financial Statements

General model in Insurance contracts measurement

The general model of measurement of insurance contracts in IFRS 17 is based on estimates of the fulfilment cash flows and contractual service margin.

Accounting policies

Accounting policies: The specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements.

Reclassification adjustments

With an increase in the use of fair value measurement in the financial position, there was a need to separate realised gains and losses from unrealised gains and loss. Realised gains and losses (using accrual accounting) are include in profit or loss. Unrealised gains and losses in other comprehensive income.