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Disclosure Initiative Principles Of Disclosure

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Discuss about the Disclosure Initiative- Principles of Disclosure.


This memo is prepared regarding the development of the proposed principles of effective communication, which the entities need to apply at the time of preparing their financial statements. After evaluating all the critical aspects, it is decided that the organisation would support such proposed principles, since this might increase the attention of the preparer to the basic financial reporting objective. In other words, it could be stated that such principles would deliver useful information to the users of the financial statements for aiding them in undertaking significant economic decisions ( 2018). In addition, the preparers would be encouraged to undertake effective approaches for communicating their story while improving the effectiveness of disclosures. From the viewpoint of the auditors, these principles could be used in the form of helpful references while discussing with the audit clients. However, well-defined objectives of disclosure need to supplement them at the standard and central level ( 2018).

Critical analysis of the proposed set of principles:

Even though the principles laid out in “Paragraph 2.6 of Section 2- Principles of Effective Communication” are considered appropriate, there needs to be consideration of the below-stated aspects:

Important matters:

According to “Point c of Paragraph 2.6”, principled regarding ‘important’ matters are described that seem to initiate another layer of evaluation, since the conceptual verge is ‘relevance’. Hence, additional explanations, instances and illustrations are needed for enabling prepares and others to understand and apply the ‘importance’ concept ( 2018).

Entity-specific and comparability:

Natural tension could be observed between some items such as ‘entity-specific’ and ‘comparability’. With the adoption of new reporting initiatives and technology, comparability over the years for the same organisation might be difficult to conduct in order to ensure effective communication ( 2018).


From the viewpoint of the auditors, it might be difficult for them in auditing and implementing the evaluation of whether few principles are adhered effectively or not. For instance, “Point g of Paragraph 2.6” states that it is necessary for an organisation to apply a suitable format or “Point c of Paragraph 2.6” takes into account the organisational principles in relation to the disclosures. Non-authoritative illustrative instances could be in these situations for understanding the thought process of the board (Tokara 2015).

Accessing information from peers:

In accordance with “Point f of Paragraph 2.6”, the financial information of an organisation is to be provided in a manner, which helps in optimising comparability among organisations and throughout the reporting periods without having to compromise the value of information ( 2018). However, it is not necessary for an organisation to access the needed information from peers for ascertaining whether the circumstances could be contrasted. Hence, in practice, this practice is extremely complex to implement in the business organisations (Pizzo et al. 2016).

Immaterial and material information:

It has been observed that there is no clarity regarding the way these principles would interact with the guidance laid out in “Point a of Paragraph 30 of IAS 1 Presentation of Financial Statements”. This particular paragraph states that immaterial information need not obscure material information. Hence, this paragraph signifies another principle related to effective communication (Pavi?, Žager and Rep 2017).

Thus, it could be stated that the prescription of the principles of effective communication needs to be made in the form of requirements in a general disclosure standard. The basis should be such that the financial statements are more probable to consider and apply the same in contrast to non-mandatory guidance. Hence, with the help of these principles, it would become easy for the preparers to access, instead of using a different kind of document such as practice statement (Islam, Nusrat and Karim 2016).


Other principles to be included in the proposed set of principles of effective communication:

It is recommended that the board should not develop non-mandatory guidance in relation to use of formatting in the financial statements, since formatting is not the primary problem in practice. Hence, any prescribed format or template might be an impediment to clear and brief reporting (Buchman, Harris and Liu 2016). It is suggested to the board to lay its concentration on other topics probable to have greater effect on communication effectiveness. More specifically, the board needs to take into account the digital reporting developments like XBRL and it is permitted or needed in few jurisdictions.

According to “Paragraph 2.21 of the Principles of Disclosure”, passive acknowledgement is provided to structured electronic data and electronic reports. By taking into account the progressive nature related to corporate reporting and financial reporting, additional detailed consideration of digital reporting needs to be a crucial part of the project. Finally, the guidance implementation needs to be incorporated in the form of non-mandatory portion of the standard identical to the other standards.

Short letter:

Orchel Accountants


Subject: Impact of proposed developments on property, plant and equipment

To: James Hines

From: Minea Chhim

According to “Point f Sub-point i of Paragraph 7.20 of Principles of Disclosure”, an organisation needs to provide various kinds of information regarding property, plant and equipment together ( 2018). For instance, as laid out in “Paragraph 16.X3 (f) of Example 2 in Principles of Disclosure”, an organisation is needed to enforce details of any other information required for representing the entire picture as a portion of the tier 1 disclosures. On the other hand, “Paragraph 16.X4 of Principles of Disclosure” states that an organisation is required to reveal information regarding property, plant and equipment along with the requirements of the above-stated paragraph in tier 2 disclosures ( 2018). As result, it might become complex for the business organisations to segregate between the needed financial information in compliance with the above two paragraphs.

However, the inclusion of these paragraphs would stress on the need for judgement to determine the information to be disclosed and the ways to disclose the same. In addition, the suggestion of NZASB could be accepted for using less prescriptive language at the time of drafting disclosure requirements in the standard. On the other hand, high doubts could be expressed regarding this approach, as no behavioural change would be inherent to encourage additional effective disclosures.

As per “Paragraphs 16.X5 - 16.X9 of Example 2 in Principles of Disclosure”, a group of potential information could be obtained from the staffs of NZASB, which an organisation is required to take into account information to be disclosed in the form of additional ones. Such type of information could be identified in the form of tier 2 information. This would guide the preparers on which consideration of information is required to be made in the evaluation of tier 2 information, since the requirement stated in “Paragraph 16.X4 of Principles of Disclosure” is not proper (Bradbury and Mear 2017). However, a risk is involved in such disclosure of property, plant and equipment. These instances would be treated in practice as a group of minimum requirement in future in the context of the business organisations.

Objections are raised to the use of ‘consider’ of ascertaining whether an items needs to be disclosed. The reason is that there are many preparers viewing the financial statements in the form of compliance burden and they intend to reveal minimum information in the financial statements (Kulikova, Samitova and Aletkin 2015). Hence, whether detailed breakdown of property, plant and equipment needs to be disclosed in the annual reports of the business organisations should vest on the preparers of the financial statements.

Even though the arguments against this approach might lead to over disclosure of property, plant and equipment, the adoption of the approach might result in risk of under disclosure. IASB needs to be encouraged to the multiple disclosure tiers with the minimum disclosure of requirements. Additional items could be taken into consideration, although the word ‘consider’ need not be used. Hence, it could be inferred that the approach of NZASB staffs would not lead to more effective disclosures due to the fact that detailed breakdown of property, plant and equipment in the provided case would lead to over disclosure.


References:, 2018. [online] Available at: [Accessed 22 Apr. 2018].

Bradbury, M.E. and Mear, K.M., 2017. Interpreting the Impact of IFRS Adoption. Australian Accounting Review, 27(2), pp.214-219.

Buchman, T., Harris, P. and Liu, M., 2016. GAAP vs. IFRS Treatment of Leases and the Impact on Financial Ratios., 2018. [online] Available at: [Accessed 22 Apr. 2018]., 2018. [online] Available at:$FILE/Comment%20letter%20%E2%80%93%20Principles%20of%20disclosure%20DP-FINAL.pdf [Accessed 22 Apr. 2018]., 2018. [online] Available at: [Accessed 22 Apr. 2018]., 2018. IFRS. [online] Available at: [Accessed 22 Apr. 2018].

Islam, M., Nusrat, F. and Karim, A.K.M., 2016. Revaluation of Property, Plant and Equipment (PPE) in Bangladesh: Motivations, Value Relevance, and Effects on Audit Fees.

Kulikova, L.I., Samitova, A.R. and Aletkin, P.A., 2015. Investment property measurement at fair value in the financial statements. Mediterranean Journal of Social Sciences, 6(1 S3), p.401.

Pavi?, I., Žager, K., and Rep, A., 2017. Significance of Notes to the Financial Statements in Business Decision Making. Theory and Applications in the Knowledge Economy, 28.

Pizzo, M., Moscariello, N., Teodori, C., Veneziani, M., Rocca, L., Quagli, A., and Roncagliolo, E., 2016. Who Influences Whom? An Exploratory Analysis of the Interrelations between Accounting Research and the IASB’s Standard Setting Activity. Financial reporting.

Tokara, M., 2015. What kind of accounting standards. Accounting and Management Information Systems, 14(3), 439.


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