标题: BIN THE CLUTTER (Part 1) [打印本页] 作者: kmf229 时间: 2016-4-20 23:30 标题: BIN THE CLUTTER (Part 1)
ACCA P2 考试：BIN THE CLUTTER (Part 1)
The effects of clutter have typically come in for little consideration by the preparers of annual reports. However, the phenomenon is increasingly under discussion, with initiatives recently launched to combat it
It is unusual to think about the effects of ‘clutter’ but, increasingly, this phenomenon is being discussed. One prominent website describes clutter as follows: ‘Clutter invades your space and takes over your life. Clutter makes you disorganised, stressed, out of control. Clutter distracts you from your priorities. Clutter can stop you achieving your goals.’ This definition of clutter may not be completely applicable to annual reports, but it is possible to see certain aspects, which are applicable.
The UK’s Financial Reporting Council (FRC), among other organizations, has called for reduced ’clutter’ in annual reports. Additionally, the Institute of Chartered Accountants In Scotland (ICAS) and the New Zealand Institute of Chartered Accountants (NZICA) were commissioned by the IASB to make cuts to the disclosures within a certain group of IFRSs, and produce a report.
Clutter in annual reports is a problem, obscuring relevant information and making it more difficult for users to find the key points about the performance of the business and its prospects for long-term success. The main observations of the discussion paper published by the FRC were:
? there is substantial scope for segregating standing data, either to a separate section of the annual report (an appendix) or to the company’s website
? immaterial disclosures are unhelpful and should not be provided
? the barriers to reducing clutter are mainly behavioural
? there should be continued debate about what materiality means from a disclosure perspective.
It is important for the efficient operation of the capital markets that annual reports do not contain unnecessary information. However, it is equally important that useful information is presented in a coherent way so that users can find what they are looking for and gain an understanding of the company’s business and the opportunities, risks and constraints that it faces. A company, however, must treat all of its shareholders equally in the provision of information. It is for each shareholder to decide whether they wish to make use of that information. It is not for a company to pre-empt a shareholder's rights in this regard by withholding the information.
A significant cause of clutter in annual reports is the vast array of requirements imposed by laws, regulations and financial reporting standards. Regulators and standard setters have a key role to play in cutting clutter both by cutting the requirements that they themselves already impose and by guarding against the imposition of unnecessary new disclosures. A listed company may have to comply with listing rules, company law, international financial reporting standards, the corporate governance codes, and if it has an overseas listing, any local requirements, such as those of the Securities and Exchange Commission (SEC) in the US. Thus, a major source of clutter is the fact that different parties require differing disclosures for the same matter. For example, an international bank in the UK may have to disclose credit risk under IFRS 7, Financial Instruments: Disclosures, the Companies Acts and the Disclosure and Transparency Rules, the SEC rules and Industry Guide 3, as well as the requirements of Basel II Pillar 3. A problem is that different regulators have different audiences in mind for the requirements they impose on annual reports. Regulators attempt to reach wider ranges of actual or potential users and this can lead to a loss of focus and structure in reports.
There may a need for a proportionate approach to the disclosure requirements for small and mid-cap quoted companies that take account of the needs of their investors, as distinct from those of larger companies. This may be achieved by different means. For example, a principles-based approach to disclosures in IFRS, specific derogations from requirements in individual IFRS or the creation of an appropriately adapted local version of the IFRS for SMEs. Pressures of time and cost can understandably lead to defensive reporting by smaller entities and to choosing easy options, such as repeating material from a previous year, cutting and pasting from the reports of other companies and including disclosures of marginal importance.
There are behavioural barriers to reducing clutter. It may be that the threat of criticism or litigation could be a considerable limitation on the ability to cut clutter. The threat of future litigation may outweigh any benefits to be obtained from eliminating ‘catch-all’ disclosures. Preparers of annual reports are likely to err on the side of caution and include more detailed disclosures than are strictly necessary to avoid challenge from auditors and regulators. Removing disclosures is perceived as creating a risk of adverse comment and regulatory challenge. Disclosure is the safest option and is therefore often the default position. Preparers and auditors may be reluctant to change from the current position unless the risk of regulatory challenge is reduced. Companies have a tendency to repeat disclosures because they were there last year.
