Company annual reports are often long and unclear as auditors and finance directors cram them with information to satisfy regulators, according to the International Accounting Standards Board (IASB).
“For many companies, the size of their annual report is ballooning,” IASB head Hans Hoogervorst said at a financial reporting conference in Amsterdam.
“The amount of useful information contained within those disclosures has not necessarily been increasing at the same rate. The risk is that annual reports become simply compliance documents, rather than instruments of communication.”
Those preparing annual reports "err on the side of caution and throw everything into the disclosures” Hoogervorst said, as they do not want to risk being asked by the regulator to restate their financials.
“No CFO has ever been sacked for producing voluminous disclosures, while restatements may be career-limiting. Moreover, excessive disclosures can even be very handy for burying unpleasant, yet very relevant information.”
Hoogervorst, a former Dutch finance minister, made suggestions for improving annual reports, including clarifying materiality, or the significance of transactions, balances and errors, as outlined in the IAS 1 accounting standard.
He also said the IASB would consider adding a “net-debt reconciliation requirement” to financial reporting standards, which would clarify what companies mean by net debt and simplify parts of financial statements.
In addition, Hoogervorst gave an update on progress towards a single set of global accounting standards.
The US does not use international financial reporting standards (IFRS) and has not said it will do so. Despite this, Hoogervorst said that IFRS had made “amazing progress” worldwide, with almost universal support.
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