Disclosure Requirements in IFRS Standards—A Pilot Approach

Timeline 

The IASB’s comment deadline is 12 January 2022

Background 

The objective of this project is to develop draft guidance for the IASB to use when developing and drafting disclosure sections.  The Exposure Draft includes proposed amendments to IFRS 13 Fair Value Measurement and IAS 19 Employee Benefits which are based on the draft guidance.

Draft comment letter

Our draft comment letter outlines our proposed response to the Exposure Draft and is open for comment until 1 November 2021. Please respond using the invitation to comment documents on this page and send your response to Contact@endorsement-board.uk.  Brief responses providing views on individual questions are welcome, as are as comprehensive responses to all questions.

Field testing 

UKEB in conjunction with IASB are seeking UK companies to field-test the proposals contained in ED/2021/3 Disclosure Requirements in IFRS Standards – A Pilot Approach (the Disclosure Pilot).  This exposure draft proposes to replace mandatory disclosure requirements with an objectives based regime, and proposes amendments to the disclosure requirements in IFRS 13 Fair Value Measurement and IAS 19 Employee Benefits.  Field testing provides the opportunity to test the proposals, identify any issues specific to UK companies, and influence the further development of these proposals by the IASB.  UKEB will use the results of field testing to prepare the UKEB Comment Letter to the IASB, and all results the of field testing will be shared with IASB.

IASB has recently extended the deadline for the Disclosure Pilot until 12 January 2022, so we are now able to offer a wider and more convenient range of dates for field testing.

Field testing involves testing the IASB's proposals, by either:

• preparing mock disclosures applying the proposed requirements for IFRS13 and/or IAS 19; and/or 

• completing a questionnaire about the mock disclosures including questions about application; and/or

• discussing with UKEB/IASB staff the process or impact of preparing the mock disclosures

Please contact us on Contact@endorsement-board.uk if you are interested in participating or would like to learn more about the field tests

Planned outreach 

Our planned outreach on the project includes discussions with preparers, investors, auditors and regulators, and public consultation on our draft comment letter. UKEB in conjunction with IASB will conduct field testing with UK companies. You can also email your thoughts on the proposals to us at any time using email address below.

IASB proposals 

This project forms part of IASB’s Disclosure Initiative, a portfolio of projects exploring how to improve the effectiveness of disclosures in financial reporting.  It seeks to address the “the disclosure problem” of financial statements containing too much irrelevant information, not enough relevant information, ineffective communication of the information provided and some entities taking a checklist approach to disclosure.  The ED aims to improve the IASB’s approach to developing and drafting disclosure requirements in IFRS standards and to help stakeholders improve the usefulness of disclosures for the primary users of financial statements.  

IASB identified a number of barriers to better disclosure based on stakeholder feedback and considered ways to addressing these which would also potentially help improve the disclosure problem. Those barriers and IASB’s proposed remedies are as follows:

a) Stakeholders have said to IASB that the easiest way to achieve compliance can be to apply disclosure requirements like a checklist.  To remedy this IASB propose that companies to comply with disclosure objectives that can only be met by applying judgement.

b) Stakeholders have said to IASB that complying with high volumes of prescriptive requirements does not leave time to apply materiality judgements.  To remedy this IASB proposes minimising the requirements to disclose particular items of information, thus removing a perceived compliance burden.

c) Preparers may not always understand why information is useful, and therefore find it difficult to make effective judgements regarding its disclosure.  To remedy this IASB proposes to engage users earlier in the standard setting process, set objectives based on user needs, and explain to preparers how the users are likely to use the information provided.

As a result the ED proposes four actions.  

a) Creates Guidance for IASB to use when developing and drafting disclosure requirements.  This proposes to largely replace mandatory disclosure items with an objectives-based regime where entities can provide disclosure that satisfies the disclosure objectives.

b) Applies this Guidance to IFRS 13 Fair Value Measurement and proposes amendments to this standard developed using the new Guidance.

c) Applies this Guidance to IAS 19 Employee Benefits and proposes amendments to this standard created using the new Guidance

d) Proposes consequential amendments to IAS 34 Interim Financial Reporting and IFRIC 17 Distribution of Non-cash Assets to Owners. 

The proposed Guidance would lead to mandatory lists of disclosure items in accounting standards being replaced with:

Overall disclosure objectives – these describe the overall information needs of investors for a particular IFRS Standard and require companies to provide information in the Notes sufficient to meet these needs.

Specific disclosure objectives – these describe the detailed information needs of investors within an IFRS Standard.  These include an explanation of what investors may do with the information.  Companies are required to provide information in the Notes sufficient to ensure these needs are met.

Items of information – provide examples of items of information a company may disclose to satisfy each disclosure objective.  In some cases providing this information will be mandatory.  These are intended to help companies apply judgement and determine how to satisfy particular disclosure objectives.

If the proposals in the ED are finalised in full then:

e) The proposed amendments to IFRS 13 and IAS 19 (and consequential changes to IAS 34 and IFRIC 17) could be enacted with immediate effect;

f) The proposed Guidance will be used in standard setting activities in future; and 

g) The proposed Guidance may be applied to amend other existing IFRS Standards, subject to the normal due process for amendment to a Standard.

The Disclosure Pilot videos with IASB and UKEB

The UK Endorsement Board secretariat have launched a series of three videos exploring the IASB exposure draft Disclosure Requirements in IFRS Standards – A Pilot Approach (the “Disclosure Pilot”). 

Links to the videos in this series can be found here: 

Video 1: The Disclosure Pilot – Overview 

Video 2: The Disclosure Pilot - Hot Topics  

Video 3: The Disclosure Pilot - Proposed amendments to IFRS 13 & IAS 19  

Hosted by Louise Freeman (UKEB secretariat) and Kathryn Donkersley & Aishat Akinwale (IASB technical staff)  these videos provides an overview of the proposals in the discussion paper, give an insight into the IASB thinking behind these proposals and reflect on some of the stakeholder feedback received to date.