Corporate reporting is too complex and needs “urgent change,” according to a discussion paper from U.K. regulator the Financial Reporting Council (FRC).
The International Accounting Standards Board should overhaul its standards so each one has an easy-to-follow structure with a clear statement of what it is supposed to achieve, the FRC said.
It also called on regulators around the world to “cut the clutter” in financial reports by easing back on the volume of disclosure they require. And it said companies themselves could make their disclosures more understandable by remembering that “immaterial disclosures undermine the quality of reports.”
The FRC said it will review a selection of 2008 annual reports from U.K.-listed companies over the summer and publish a paper showing how regulation had caused clutter. The executives it spoke to when researching its paper “almost unanimously said the process of compiling a report is too complex, and so are the reports themselves,” it added.
The paper, “Louder than Words: Principles and Actions for Making Corporate Reports Less Complex and More Relevant,” recommends what the FRC calls “a commonsense approach to reducing complexity.” It sets out eight guiding principles, four for better communication in reports and four for improving the quality and effectiveness of regulations.
Ian Wright, the FRC’s Director of Corporate Reporting, said: “The FRC and many others agree that regulations themselves should be principles or outcomes based. So shouldn’t those setting the regulations and standards also do so within a principles-based framework?”
The paper is also available for download in short and long versions.
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