Principles of disclosure – take your paper and, uh…

Let’s return to the IASB’s Principles of Disclosure discussion paper, for which the comment period closed in October….

I commented last time that it’s very much a document for a linear, paper-based world, barely acknowledging the impact of technology. This is how the IASB staff summed it up in a staff paper:

  • Many respondents were concerned that the Discussion Paper was based on an assumption that users would be consuming financial statements in a paper-based format and did not consider the potential effects of technology and digital reporting. In addition, a few respondents thought that the disclosure problem might change in a digital reporting environment. For example, some said that the ability of users to search and find information in electronic formats, and easily discard information that is not relevant to their analysis, would make concerns around irrelevant information in the financial statements less significant.

It’s hard to imagine the IASB couldn’t have seen such commentary coming. I looked for a while through the project history for a better sense of why the discussion paper stuck so rigidly to that paper-based assumption, but couldn’t readily find anything. In its feedback statement on the 2015 agenda consultation, the IASB said

  • The Board plans to maintain and improve the IFRS Taxonomy while at the same time encouraging and supporting the use of electronic reporting. The Board will also examine how changes in technology could affect financial reporting.

But as that’s the only mention of it in the feedback statement documentation, it seems that the Board envisaged this “encourage/support/examination” as something of a stand-alone initiative, not particularly integrated with its other projects, nor as urgent as them. An article on the IFRS website,  summarizing an April 2017 outreach event held by the IFRS Foundation and the CFA Institute, provides an amusing indication of relative priorities. It says:

  • There was also a desire among audience members to improve the way that financial data is electronically tagged to allow it to be “sliced and diced” automatically—albeit with some reservations about how much the process of copying across data can be automated reliably.

But maybe the following is more telling:

  • Time constraints meant that there was little opportunity to discuss some other digital issues, such as how companies might exploit advances in data visualisation techniques and whether social media will ever become a meaningful channel for communication with markets.

Ah, time constraints…if we collectively made smarter use of these technologies, would we have fewer of those? I guess we can’t count on it.

There also seems to be a disconnect with a June 2016 news release announcing the conclusion of the trustees’ 2015 review of structure and effectiveness, which said the trustees will oversee the effectiveness of actions to:

  • accelerate work to address barriers to high-quality digital reporting by collaborating with investors, securities regulators and others to ensure the IFRS Taxonomy remains fit for purpose. At the same time, the Foundation will establish a network of experts to provide advice on technological innovation and its impact and relevance to IFRS Standards.”

It’s hard to tell what came from this in practice. The most recent meeting summary for the trustees, from January 2018, didn’t mention that line of thinking at all; nor did the one before that, in November 2017, or the one before that, in May 2017. I couldn’t readily identify whether any more progress had been made on finding the network of experts. In February 2018, the IFRS advisory council held a “lively debate” on the topic of social media, expressing support for “the concept of, and need for, the Foundation to engage on social media and to have a social media strategy” – the minutes report that “members provided various aspects of advice with the main item being that an initial strategy includes ‘push’ only, rather than a two-way social media debate.” Fair enough, but not exactly indicative of great progress toward technological innovation.

Of course, the meeting summaries don’t summarize everything, and maybe (presumably?) much more is happening behind the scenes. But even if that’s the case, it doesn’t negate the (at best) fragmented attention to this topic on the website, or its absence from the discussion paper. Let’s return to a speech by IASB Chair Hans Hoogervorst, one we’ve visited before in a lighter vein:

  • …the more information becomes available, the more need there is for comparability, standardization and quality control. Accounting standards aim to achieve this, based on sound economic principles. Just think about the current diversity in accounting practices for insurance activities. No artificial intelligence in the world would be able to make heads or tails from information that is in many cases inherently flawed.
  • This is why I do not see the advent of Big Data and Artificial Intelligence as a challenge to the relevance of accounting standards.  They can provide useful supplemental information—certainly in terms of speediness, but they will not replace the financial statements.

That’s certainly true with regard to the essential credibility of the numbers of course, but far less so as a reason for continuing to fuss about matters of formatting, or the location of information within the statements, or the other musty issues that seemed largely irrelevant to various readers of the discussion paper.

Anyway, the most recent IASB update reported that the Board “decided that the staff should perform further analysis about whether and how to consider the effect of technology and digital reporting within the scope of the Principles of Disclosure project for discussion at a future Board meeting,” so we’ll have to wait and see. In the meantime, the last word belongs to PWC:


The issues that what?!! I guess the writer was thinking about a particular kind of paper…

The opinions expressed are solely those of the author

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