Meet the Experts - Speak to the user, not the regulator

What do you believe is the principle cause for the expanding disclosure in annual reporting?


 
What three areas of disclosure do you believe have the least value in relation to their length?


 

Excessive and fragmented disclosure is hampering good corporate communication. The focus should be on quality rather than quantity.

Disclosure – excessive disclosure in particular – was a theme running through the conference and, if the Twitter comments on the day are a good indicator, was very much on the mind of delegates as well.

The question is, who is to blame? Delegates laid responsibility at the feet of standard setters (45%) and regulators (39%). But as IASB member Stephen Cooper pointed out, that’s not the whole story: “We’re not the only ones to blame. Users like disclosures, and if you ask anyone which [disclosures] should be taken away, they find it very hard to choose”.

Many speakers felt that the problem was behavioural, with companies too often erring on the side of caution to avoid lengthy discussions with the regulator. Former SEC Chief Accountant and current PwC partner Wayne Carnall said there was much that companies can do and his message was to “make your annual report more informative by providing less information”.

Russell Picot, Group Chief Accounting Officer at HSBC, knows better than most how difficult that is to achieve in practice. The HSBC financial statements are 550 pages long; a few years ago, he said, he managed to trim back about 100 pages; but over the following three years, incremental disclosure requirements added back 150 pages. But HSBC continues to experiment: “We’ve also tried moving the heavy text - the standard disclosures that don’t change from year to year – to the back and stating upfront which of our disclosures had changed. Structuring is a good idea, but it doesn’t necessarily result in a shorter report.”

We think this hits the nail on the head. The focus should not be on reducing the quantity of disclosures but on increasing their quality. Companies should ask themselves why and how they disclose what they disclose: Is it material? Is it repetitive? Can I tell the story in a more clear and cohesive way? If disclosure quality improves, a reduction in volume should be a natural by-product.



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