The OSC has issued OSC Staff Notice 52-723 Office of the Chief Accountant Financial Reporting Bulletin.
The document revisits the topics of going concern and non-GAAP measures, which we’ve covered on this blog several times in the past. On the latter, the document makes the observation that “the presentation and discussion of an extensive number of non-GAAP financial measures can obscure GAAP results. Often, the greater the number of measures, the more potential there is for confusion, or for material information to be obscured.” Of course, that’s broadly true for any document that’s longer and has more numbers in it, relative to a shorter one. But the observation might cause preparers to focus more fully on certain aspects of the expectations set out in Form 52-306. For example, the greater the number of non-GAAP measures an issuer presents, the less likely it presumably is that any particular measure provides useful information to investors, or that there are any significant purposes for which management uses it.
The document summarizes the “disclosure effectiveness” amendments to IAS 1 that we discussed here, referring disapprovingly to “boilerplate immaterial information that provides little value, ‘clutters’ the financial statements and imposes additional costs on reporting issuers in the time and resources spent on preparing the information” and commenting:
- When preparing financial information, Staff encourage reporting issuers to take a “fresh look” at their financial statement disclosures, and consider how information could be more effectively and efficiently presented. Reporting issuers should consider their financial reports as important communication documents as opposed to a “compliance exercise”. A reporting issuer’s management, audit committee, and external auditor each has an important role to play in contributing to the objective of providing investors with clear and concise information about the financial affairs of the entity.
It’s a more than fair point, but the absence of any greater specificity perhaps illustrates how it can be easier said than done. Some preparers might reasonably worry that what seems to them like boilerplate and clutter might seem to the OSC like important information (as I addressed here, the IFRS Discussion Group didn’t help with its clutter-friendly conclusion that an entity is required to disclose all significant accounting policies “on the basis that it cannot be assumed that all users are familiar with the requirements of IFRSs”). It would be foreign territory for the OSC to start commenting more specifically on what should usually be excluded from financial statements, rather than on what should usually be included, but it would probably have gone some way to help.
Regarding the new standards to come on the scene over the next few years – IFRS 9, 15 and 16 – the document expresses the following general expectation:
- reporting issuers have begun or will soon commence the work necessary to implement the new accounting standards
- audit committees be actively engaged in oversight of the implementation processes relating to the new accounting standards
- auditors consider their role in evaluating the reporting issuer’s compliance with disclosure requirements relating to the future impact of the new accounting standards
- reporting issuers provide increasingly detailed disclosure about the expected effects of the new accounting standards as they make progress in their implementation efforts and the effective dates approach.
It’s only fair to observe that the overall transition to IFRS a few years ago provided plenty of evidence both that companies can drag their feet for a long time and then sprint to a catch up, and that analysts and other users don’t generally seem to mind, as long as they don’t see an impact on key performance measures. In this case, IFRS 15 in particular might actually give them something to worry about in that regard. If a company runs the risk though of annoying its investors by not giving them adequate notice of future changes to the statements, or of screwing up completely by running out of time, I suppose that’s a decision it’s entitled to make, as much as any other strategic decision it may live to regret. The important thing, it seems to me, is to be forthright about this approach, and not to hide behind boilerplate, cluttering language about how it’s working on assessing the impact of the standards and can’t yet determine the impact (etc. etc….)
The notice also includes several pages on the disclosure requirements of IFRS 13, focusing in particular on the real estate industry and on level 2 and level 3 measurements. I always think in my simplistic way that all those disclosures are mainly a way of making sure users understand exactly how wrong the carrying values in the balance sheet could be. I wouldn’t have expected the OSC to put it this way, but now that we’re in the age of Trump, the only safe approach to such disclosures is presumably to assume everything might turn out more wrong than we ever previously expected…
The opinions expressed are solely those of the author