Increasing disclosure requirements causing complexity

Media release

1 July 2011

Increasing volume of disclosure requirements risks making financial statements more complex

Financial reporting survey shows reports are longer and the quality of information provided varies significantly

Financial statements run the risk of becoming more complex because of the increasing volume of disclosure requirements under International Financial Reporting Standards, according to Deloitte partner Denise Hodgkins.

The second annual Deloitte Financial Reporting Survey of 100 listed and other large companies with publicly available information shows financial statements are on average 42 pages long, up from 39 pages in 2009, and annual reports average 76 pages in total, up from 68.

Ms Hodgkins says that new disclosure requirements for financial instrument fair values, additional disclosures regarding the May 2010 budget changes to tax, and the choice to present an income statement and separate statement of comprehensive income led to some of this increase in length.

With a number of new standards on the horizon covering topics such as revenue, leasing, financial instruments and insurance contracts, the disclosure burden is expected to increase.

"To counteract this, we note that there are still areas where clutter in financial statements can be reduced, such as removing accounting policies that are not relevant to the company and avoiding repetition," Ms Hodgkins says.

"The key to disclosure is to focus on primary areas of importance to investors and other stakeholders such as quality of earnings, risk management disclosures and decisions made that involve assumptions that are subjective or uncertain."

While there are examples of clear and transparent disclosures in these areas, the quality of information provided varies significantly from boilerplate statements to detailed quantitative and qualitative information.

"With continuing market turbulence and the impact of natural disasters on the economy, transparent information on an entity's earnings, how it manages its risks and the assumptions it makes in valuing assets or determining impairment is critical."

The survey considers the financial reporting practices in 2010 annual reports, and includes some examples where informative disclosures were provided.

To see the Deloitte Financial Reporting Survey series, go to www.deloittecom/nz/financialreportingsurvey.

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