EFRAG comments on IFRS pilot approach
The European Financial Reporting Advisory Group (EFRAG) has published a comment letter responding to the new pilot approach to IFRS Standards developed by the International Accounting Standards Board (IASB). A feedback statement also summarises viewpoints collected from stakeholders and how they fed into the EFRAG position.
Through objective-based disclosure requirements, the pilot approach aims to introduce more tailored and investor-useful financial disclosures and to move away from a ‘checklist mentality.’ There is undoubtedly a significant debate to be had here in terms of the balance between comparability and relevance, in which we may not all reach the same conclusions about the best trade-offs.
EFRAG considers that the proposals in the IASB exposure draft (ED) may not achieve their intended objective. It submits that objective-based requirements that do not entail disclosure of specific items of information may not provide more useful data, and could potentially result in the omission of relevant information. EFRAG also raises the concerns that such requirements could hinder comparison, increase enforcement and audit challenges, and increase costs for preparers and auditors due to a greater need for materiality judgements.
We were particularly interested by EFRAG’s perspective on the interactions between the proposals and developments in digital reporting. “Digitalisation may help alleviate the disclosure problem that the ED intends to address as digital users of financial information are able to navigate more easily and find the information they are looking for,” it suggests, adding that moving away from lists of required disclosures creates specific challenges for digital reporting. “Comparability of information is a pre-requisite for the effective use of technology-based reporting,” it states. A useful contribution to an ongoing discussion!