Change in the wind? Recent speeches signal IASB shift
Recent IFRS speeches indicate a new willingness to better integrate IFRS reporting with additional non-financial reporting metrics that have developed out of changing investor needs.
Technology means we have seen a dramatic shift in the importance of intangible assets, reducing the relevance of the traditional balance sheet. Demand from investors for sustainability reporting is on the rise. Digital technology means significantly more timely information is available to investors. And structured data has allowed information to be compared piece by piece or aggregated and analysed as part of huge data sets with the help of machine learning tools.
In two recently published speeches and a related article, IASB Board Members have — really for the first time — indicated a willingness to consider their role in relation to these new reporting trends. IASB Chair Hans Hoogervorst — delivered a speech that acknowledged the need to tackle the growth of non-GAAP reporting with two projects: The Primary Financial Statements (PFS) project and updated Management Commentary guides.
The PFS project aims to define more subtotals – such as operating profit – within the balance sheet in order to improve the comparability of financial information. The IFRS hope this will reduce the need to non-GAAP measures, however, they also hope to bring greater transparency and discipline to the use of non-GAAP by compelling companies to include their most important non-GAAP measures in a note within the financial statement, and to reconcile non-GAAP figures with the closest IFRS subtotal. This will have the additional benefit of bringing non-GAAP measures into the scope of the audit.
The IFRS is also examining ways to manage non-GAAP reporting by updating the Management Commentary rules – a manual for writing the management report in order to better guide filers through reporting on intangible assets and sustainability issues.
These measures indicate a potentially significant first step for the IFRS towards exploring a more integrated approach to their standard-setting remit.
Read more on the incoming IFRS updates here and here. And read Board Member Nick Anderson’s article on approaches to incorporating climate-related disclosures into the body of IFRS financial statements. A shift in direction? Perhaps.