Companies Should Cut Financial Statements By 30%

21 July 2011

Companies’ financial statements should be cut by 30%.

More focused information would bring a greater clarity and understanding to those seeking to assess the financial performance of leading companies.
That's the conclusion of a joint working party made up of members from two of the world's leading accountancy bodies – the Institute of Chartered Accountants of Scotland (ICAS) and the New Zealand Institute of Chartered Accountants (NZICA).

In recent years, the financial reporting community, including investors, has become concerned about the increasing size of annual reports (44% increase from 2005 to 2010 for UK listed companies). This has led to readers being blinded by so much data that many key messages about a company’s performance are drowned by the detail.

The joint working party observed that "so much financial data is hindering, not helping, communication.”

The conclusion was that we must "lose the excess baggage and focus on what’s important.”

The work was carried out by ICAS and NZICA after a request from Sir David Tweedie, recently retired Chairman of the International Accounting Standards Board (IASB), to help reduce the volume of disclosure requirements in International Financial Reporting Standards (IFRS).
The report findings are being presented to the IASB today. Both ICAS and NZICA hope that the IASB will implement the recommendations so that the suggested improvements can be introduced around the globe as soon as possible.

This would ensure that financial statements focus more on what is important to the user. It could also reduce the costs of producing, printing and distributing such large, unwieldy financial reports. Preparers will then spend less time on arranging numerous detailed disclosures, that are often irrelevant, and more time on providing meaningful information.

Isobel Sharp, a Visiting Professor at Edinburgh University Business School and a senior partner with Deloitte, co-chaired the joint working party. She said: “We have carried out a massive spring cleaning exercise, throwing out those disclosure requirements which simply add clutter to the financial statements and helping preparers be bolder in deleting details which are simply not important to readers of financial statements. The current excess disclosure baggage carries the penalties of extra cost and poorer communication. We are recommending that preparers pack only the essentials into their reports.”

Joint chair Tony Frankham, recently retired board chair of Auckland International Airport and past President of NZICA, said the charge given to the strong and exceptionally representative joint working party emanated from a widely held view internationally that disclosures have grown to the point that they reduce the usefulness of financial statements.

He added: “The work of the party and its report reinforces the proposition beyond doubt and presents recommendations in a convincing manner. The recommendations now deserve the support of those involved in the various jurisdictions in preparing, auditing, issuing and using financial reports in every country using IFRS."

ENDS

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