FINANCIAL REPORTS have become a disjointed collection of disclosures and many do not meet the objective of financial reporting, the UK reporting watchdog has said.
The FRC has published a discussion paper aimed at improving the quality of financial reporting disclosures. In particular, the paper covers the reduction of clutter in financial reports by avoiding duplication in disclosures and using tests of materiality more rigorously.
“The objective of financial reporting seems to have been forgotten as disclosures have become more about compliance than communication,” the paper said.
The aim is to develop a coherent framework within which standard setters and other regulators can set disclosure requirements and preparers and auditors can apply them.
Disclosures that do not meet the objective of financial reporting should be excluded from the financial report, the FRC said.
For instance, the EU recently consulted on country-by-country reporting for extractive industries, including a proposal to include additional disclosures in the financial statements. The FRC suggested that these may be better placed in the annual financial report, as they do not meet the objective of financial reporting.
Roger Marshall [pictured], director of the FRC, said: “We believe that there is a need to curtail the piecemeal approach to disclosures and develop a coherent framework for disclosures in the financial report. We anticipate that this will lead to disclosures in financial reports being more relevant to the needs of the users of those financial reports while at the same time cutting clutter.”
The consultation period closes on 31 January 2013.