These proposals would enable companies to improve their judgment of the quality of disclosures and reduce ‘boilerplate’ information, giving investors more useful information.

The notes in financial statements sometimes include too little relevant information, too much irrelevant information and information disclosed ineffectively. Stakeholders say this typically occurs when the requirements in IFRS standards are treated like a checklist without applying effective judgment.

Responding to stakeholder demand for the IASB’s help in addressing these issues, the IASB has set out a new approach to developing the disclosure requirements in IFRS standards.

Disclosure requirements developed using this approach are intended to better enable companies, auditors and others to make more effective materiality judgments and provide disclosures that are more useful to investors.

The new approach is written as draft guidance for use by the IASB when developing disclosure requirements in individual standards. The guidance is designed to:

• enhance investor engagement to ensure the IASB has an in-depth understanding of investors’ information needs and clearly explains those needs in the standards;
• give greater prominence to the objective of disclosure requirements, requiring companies to apply judgment and provide information to meet the described investor needs; and
• minimise requirements to disclose particular items of information, and instead to help companies focus on disclosing material information only.

The IASB has tested this new approach using two IFRS standards - IFRS 13 Fair Value Measurement and IAS 19 Employee Benefits - and has proposed amendments to the disclosure requirements in those standards in the Exposure Draft.

The proposed amendments to IFRS 13 comprise:

1. an overall disclosure objective and specific disclosure objectives for assets and liabilities measured at fair value in the statement of financial position;
2. a specific disclosure objective for assets and liabilities not measured at fair value in the statement of financial position but for which fair value is disclosed; and
3. items of information to enable an entity to meet the specific disclosure objectives;

The proposed amendments to IAS 19 comprise:

1. overall disclosure objectives for employee benefits in the scope of IAS 19;
2. specific disclosure objectives for defined benefit plans; and
3. items of information to enable an entity to meet the specific disclosure objectives for defined benefit plans.

The IASB is seeking stakeholder feedback on whether the proposed new approach to developing disclosure requirements and proposed amendments to IFRS 13 and IAS 19 would help companies and others improve the usefulness of information disclosed.

These proposals will affect entities that disclose information in financial statements about fair value measurements and employee benefits in accordance with IFRS standards, and all users of those financial statements.

Hans Hoogervorst, chair of the IASB, said: ‘We believe this new approach to developing disclosure requirements in IFRS standards can serve as a catalyst to improving information to investors; however, real improvements can only be achieved if all those involved - companies, auditors, regulators and investors - work together.

The IASB developed the proposals as part of its Disclosure Initiative—Targeted Standards-level Review of Disclosures project. The project is part of the work under the theme Better Communication in Financial Reporting and is one of several projects aimed at improving disclosures in the financial statements.

The deadline for comments is 21 October 2021.

IASB Exposure Draft Disclosure Requirements in IFRS Standards—A Pilot Approach, the Basis for Conclusions and the Illustrative Examples