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Disclosure Requirements in IFRS Standards – A Pilot Approach

Description

​EFRAG podcast - 
Field testing the IASB ED Disclosure Requirements

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Background

The Principles of Disclosure Discussion Paper issued by the IASB in 2017 identified three main concerns about information disclosed in general purpose financial statements (collectively termed the 'disclosure problem'). These concerns were:  

(a)         not enough relevant information;

(b)         too much irrelevant information; and

(c)         ineffective communication of information.

In response to stakeholders concerns about the quality of disclosures, the IASB launched the Disclosure Initiative project along with other projects aimed at improving the effectiveness of disclosures in financial statements.

Exposure draft

On 25 March 2021, the IASB published the exposure draft Disclosure Requirements in IFRS Standards — A Pilot Approach (the ED). The ED proposed a new approach for the IASB to develop disclosure requirements and test that approach by applying it to IFRS 13 Fair Value Measurement and IAS 19 Employee benefits. The new approach would require entities to comply with: 

  • overall disclosure objectives that describe the overall information needs of users of financial statements; and

  • specific disclosure objectives that describe the detailed information needs of users of financial statements.

The ED also identifies items of information to meet each specific disclosure objective. However, entities would need to apply judgement to determine the information they should disclose to satisfy the specific disclosure objective.

EFRAG published its DCL on the ED on 11 May 2021.

Outreach events 

On 30 June 2021 EFRAG hosted with the IASB an educational joint outreach event in the form of a webinar with the purpose of stimulate debate on the Disclosure Initiative project.

EFRAG  issued a summary report (here) of the webinar providing a summary of the main views expressed.​

Other outreach activities involved two public events: a joint webinar held by EFRAG in cooperation with Confederation of Danish Industry (DI), FSR – Danish Auditors and the IASB (see summary report here) and a joint discussion held by ASCG in collaboration with EFRAG and the IASB.

Field-testing activities 

EFRAG, in close coordination with the IASB, conducted field-testing activities which involved a total of 22 entities. In EFRAG's view field test activities are essential for this project to understand the practical implications of the approach and concerns around comparability, auditability and enforceability.

The participants were asked to prepare mock-up disclosures by applying the proposed requirements and complete a questionnaire; or provide input only via the questionnaire or a structured interview. The large majority of participants agreed to prepare mock-up disclosures for one or both of the tested standards.

After collecting the results of the field test, EFRAG and the IASB conducted three workshops with 15 out of the 22 field test participants to discuss the field test result. Based on the field test result workshops with users and auditors were held. The consolidated feedback obtained from the workshop participants as well as the additional input from all the other field test participants are summarised in the feedback statement (here).

As most of the entities participating in the field test activities were large entities, EFRAG also issued a questionnaire aimed at small and medium entities, resulting in 45 participants. 76% of the respondents were small and medium sized entities applying IFRS and the rest were large entities. The result was reported to EFRAG TEG in December. 

Outreach event - 10 December

On 10 December 2021 EFRAG hosted with the IASB and BusinessEurope a joint outreach in the form of a webinar with the purpose of sharing the fieldwork experience of the participants as well as the positive aspects and concerns around the approach.

EFRAG  issued a summary report (here) of the webinar providing a summary of the main views expressed.​ A recording of the event is available here.

Final Comment Letter

On 27 Januray 2022 EFRAG issued its final comment letter which can be found here. A summary of the findings from the extensive research conducted by EFRAG is provided in the Annex to the Comment letter. In the letter, EFRAG welcomed the objective of the project, but concluded that the proposed approach in the ED may not achieve its intended objective and suggested an alternative approach. Consistent with the suggestion to apply an alternative approach combining objectives and mandated disclosure items, EFRAG does not support finalising the amendments to IAS 19 and IFRS 13 as proposed. EFRAG suggest that the IASB first considers the feedback received in response to its proposed general approach.

On 4 March 2022 EFRAG issued a feedback statement which describes the main comments received and how these comments were considered by EFRAG in finalising its comment letter to the IASB.

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