The latest issue of RSM Reporting, our quarterly newsletter covering technical developments in the area of global financial accounting and reporting, looks at a valuable initiative by the UK Financial Reporting Committee (FRC) which is likely to have a significant impact on our profession worldwide.
As the IASB and EFRAG intensify their efforts to clarify accounting standards and issue interpretations of those standards, the UK FRC has launched the Financial Report Lab. The Lab will provide more opportunities for investors and preparers to voice their concerns and suggestions, and to help remove redundant information from companies’ reports.
Stephen Hadrill, CEO of the UK Financial Reporting Committee said:
“We have been spending a lot of time in the last few years trying to enhance the quality of corporate reports and accounts, particularly addressing whether we have too much clutter and inaccessible documents.
“It’s hard for preparers to identify what they should cut and what they should keep. Also the lawyers advising firms often convince them to include everything possible. In this context we felt we should proactively help people to bring about change.”
The Lab will be producing guidance to help companies change the way they report, particularly by highlighting best practice, and providing the needed confidence to preparers who are simply aiming to get investors the right information in a clear and accessible manner.
The IASB and FASB convergence is noted as one of the causes of clutter as companies try to create reporting to cater to two separate regimes.
Stephen Hadrill continues: “In the UK we believe in the principle based approach, whereas the US has a different legal tradition. We certainly encourage the IASB to maintain as far as possible the principle based approach.
“There is also the fact that in an increasingly globalised world the companies are paying more attention to the fact their reports are written for the US market as well as for a European market.”
Bob Dohrer, Global Leader – Quality and Risk for RSM said:
“We are hopeful that the work of the FRC’s Financial Reporting Lab will facilitate preparation of more clear and more easily understandable financial reports for the users of those reports. The timing of this work is certainly appropriate given the calls for more transparency in financial statements and auditor’s reports coming from the European Commission’s audit proposals and the need for this work reflects the increasingly global nature of financial reporting.”
The Financial Reporting Lab is clearly valuable initiative which will likely influence reporting standards globally. We’ll be keeping you posted of its activity on this blog.