Financial statement disclosures

One of the projects that the International Accounting Standards Board (IASB) is currently undertaking is the Disclosure Initiative project, with the aim of improving communication in financial reports.

The IASB has identified three main concerns about disclosures in financial statements, namely: there is not enough relevant information in the notes, there is irrelevant information in the notes, and there is ineffective communication of the information provided.

The IASB released a discussion paper in March 2017, DP 2017/1 ‘Disclosure Initiative – Principles of Disclosure’ and is currently seeking feedback on the disclosure issues identified and on the Board’s preliminary views on how to address them.

You are an investor who, for years, has struggled to work through and understand all of the note disclosures when analysing and comparing the financial reports of companies that you are considering investing in.

You are currently considering investing in either CBA or NAB. After reviewing and comparing the note disclosures provided in their 2017 annual reports, you plan to make a submission in response to the IASB’s discussion paper. In your submission, you plan to provide feedback in response to ‘Section 2 – Principles of Effective Communication’ of the discussion paper, given the difficulties that you have faced due to ineffective communication in financial reports.

In section 2 of the Discussion Paper, the IASB has proposed that a set of principles of effective communication be developed. The seven principles identified in the Discussion Paper are that information in the financial reports should be:

• Entity specific;
• Clear and simple;
• Organised to highlight important matters;
• Linked to related information;
• Free from unnecessary duplication;
• Comparable; and
• In an appropriate format.

Required:

Download and the Discussion Paper DP 2017/1 ‘Disclosure Initiative – Principles of Disclosure’

Download the 2017 annual reports for CBA and NAB. Review and compare the notes that form part of each entity’s financial reports

Prepare a letter to the IASB. In your letter:

• Discuss which of the seven principles of effective communication you feel are lacking the most in the note disclosures contained in the 2017 financial reports of CBA and NAB (and hence which principles you think that the IASB needs to put the most work into, in order to improve communication in financial reports).
• Suggest two specific changes that you think will make the biggest improvement to the effectiveness of note disclosures for investors like yourself, given the issues discussed above.

(Word limit: 1200 words)