Principles of Disclosure: Better Communication in Financial Reporting

Running head: PRINCIPLES OF DISCLOSURE
Principles of Disclosure: Better Communication in Financial Reporting
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Author Note

PRINCIPLES OF DISCLOSURE1
Table of Contents
Answer to Requirement 1............................................................................................................2
Answer to Requirement 2............................................................................................................2
Answer to Requirement 3............................................................................................................2
Answer to Requirement 4............................................................................................................3
Answer to Requirement 5............................................................................................................6
Answer to Requirement 6............................................................................................................7
References....................................................................................................................................9
Appendix....................................................................................................................................10

PRINCIPLES OF DISCLOSURE2
Answer to Requirement 1
The main reason for IASB undertaking the project for improving the communication of
the information was the feedback it received in 2013 (IFRS 2018). In that year, the board
received a lot of feedback from the stakeholders about the uncertainty involved in the
information communicated by the existing reporting guidelines. They thought the current
guidelines provided information that was either too irrelevant or communicated in an ineffective
manner that could not be understood by majority of the users. Hence, the IASB found that the
problem related to this particular aspect was multifaceted and in need of inputs from different
stakeholders to be able to improve it on an overall basis. Many researchers have suggested that
the present form of financial statements are nothing more than a combination of numbers and
words which do not take the real world conditions into consideration (Frc.org.uk. 2014). Hence,
the board understood that the emphasis was to be laid on clear and concise reporting which
focussed more on improving the accessibility and understand ability of the financial reports.
Answer to Requirement 2
Disclosure refers to the decision of an organisation on whether to state a particular policy
in the financial statements or not. While increased disclosures are considered good for the
maintenance of transparency, there should be a limit to which these are conducted. The main
concerns that were identified to be a major part of the disclosure problem were as follows:
1. Lack of sufficient relevant information;
2. Excess of relevant information; and
3. The information provided was communicated in an ineffective manner.
Most of the existing principles of financial reporting were considered to be the cause of this
particular problem and hence there was the necessity of working on the principles to improve
the disclosure aspect of financial reporting (IFRS 2019).
Answer to Requirement 3
The amendments made to IAS 1 and IAS 7 are a part of the Principles of disclosure
research project commenced by the IASB. The project was aimed at improving the basic method
in which the disclosure in financial statements took place. The Amendments to IAS 1 were
published in December 2014. The main objective of this publication was to eliminate the barriers

PRINCIPLES OF DISCLOSURE3
that existed in the exercising of judgement. These particular amendments started becoming
operative for annual periods commencing on or after 1 January 2016. The main amendments that
were made to IAS 1 were to reassure entities to use judgement in defining whether something
was material and required to be revealed in the financial statements or not (IFRS.org 2019). To
provide more support to the users, it was decided that the definition of material was also
amended. The revised definition suggested that a particular information was material if omitting,
misstating or obscuring it could have a significant influence on the decision-making process of
the users of the financial statements regarding the information received from them. The previous
definition’s focus was limited to misstating or omitting information. However, the new
amendment understood that obscuring or understating the relevance of the information was also
a form of misstatement.
The amendments to IAS 7 Statements of Cash Flows was made to improve the disclosures
related to changes in liabilities from financing activities. These particular amendments began to
become effective for a period starting from 1 January 2017. The amendment mainly dealt with
the changes occurring in liabilities from financing activities of an entity, which consists of both
cash related and non-cash related changes (Ifrs.org. 2019). These particular amendments were
undertaken due to the request from stakeholders to enable them to better understand the changes
occurring in an entity’s debt. In specific terms, the amendments made to IASB 7 were to improve
the disclosure about the financing activities of an organisation and the aspects of liquidity of an
entity. This also included information about its liquidity and the restrictions that were in place
regarding the manner in which the entity could spend the cash balances available with it during
the course of the business.
Answer to Requirement 4
The main aim of the exposure draft published by the IASB was to provide assistance to
the management of an entity in applying the concept of materiality in the preparation of general
purpose financial statements that were prepared by following the IFRS guidelines (IFRS 2015).
In order to understand whether a particular item is material or not, it is important to consider all
the items involved in the assessment of a particular item. There are no standard practices of
determining whether a particular item is material or not. The aspects that have been identified to