Financial reporting has undergone significant changes in recent years. The IASB (International Accounting Standards Board) has introduced several new financial reporting standards in the past five years, such as IFRS 9 (Financial Instruments), IFRS 16 (Leases), IFRS 15 (Revenue from contracts with customers), and IFRS 17 (Insurance Contracts).
With more standards like IFRS 18 (Presentation and disclosure in the financial statements) on the horizon, including those on rate-regulated activities, the financial reporting landscape is set to evolve further. In light of this, it's crucial for financial statements preparers to understand the perspective of the users.
This understanding is critical to maintaining and enhancing the utility of the financial statements. Therefore, it's essential for preparers to steer clear of common pitfalls when preparing financial statement disclosures.
By avoiding these pitfalls, preparers can ensure that their disclosures are well-prepared, thereby increasing the utility of the financial statements for users, enhancing transparency, and building trust with stakeholders.
One key aspect to note is the limited size (pages) of financial statements. This limitation necessitates that organisations are deliberate in their inclusion of information and its placement. This approach ensures that disclosures focus on material matters, preventing immaterial matters from obscuring them.
A focus on material accounting policies and disclosure is crucial as it directs attention to what is important for the users of the financial statements. Another pitfall to avoid is the use of boilerplate disclosures. Disclosures should be bespoke and tailored to an organisation. It can be frustrating for financial statement users when disclosures fail to convey an organisation’s unique story, potentially eroding stakeholder trust.
A scattered approach to disclosures is another pitfall to steer clear of. This approach occurs when information on balances, amounts, or transactions is scattered across different notes in the financial statements.
The better approach is to ensure that information on balances, amounts, and transactions is provided once and in one place.
This approach simplifies navigation of the financial statements and enhances understanding of the details related to balances, amounts, and transactions. As the disclosure requirements for financial reporting increase, how organisations apply them will be crucial in aiding users’ understanding and building trust with their stakeholders.
Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.
