The objective of this memo is to present a critical analysis of the proposed principles of effective communication that have been highlighted in the discussion paper named “Disclosure Initiative – Principles of Disclosure” which has been issued by IASB in March 2017. The critical analysis of the various proposed principles outlined in the memo would allow the firm to take a position on whether to endorse the position taken by the IASB or oppose the same. Further the critical analysis of the effective communication principles would also allow the firm to advice on additional principles which may not be reflected in the current version of the draft issued.
An analysis of the various principles of effective communication that have been outlined in the Section 2 of the above mentioned discussion paper is carried out below.
Hence, it makes sense that the disclosures should be made in a manner that tend to facilitate comparison (AASB, 2017).
It is apparent that the above principles of effective communication are a step in the right direction considering that these are guidelines which would ensure that the informational needs of the external stakeholders would be better served. Also, a key positive aspect of these principles is the inherent flexibility that these boast which provides a relatively free hand to the reporting entities to ensure that requisite information is disseminated in a timely and appropriate manner. Thus, the firm would endorse the above principles that the IASB discussion paper highlights since these would serve the interests of the users of financial statements. However, it makes sense that certain additional principles of effective communication are also added to uphold the interest of the users. One of these would be that the information disclosed should only consist of those material facts which are useful for the users and must not contain non-material information which adds to the complexity. Also, it would be useful for addition of a glossary which could reflect the meaning of the various technical jargons that have been used in the disclosures. This would go a long way in enhancing financial literary of the host of users which today rely on the professionals for interpretation of the financial reports.
Thus, it would be appropriate to conclude that the various principles of effective communication highlighted in the discussion paper would go a long way in serving the objectives of the financial disclosures. Also, if the recommendations in this regard are also included, then in the long run, financial literacy of primary users can also see a significant improvement.
Yours Sincerely
STUDENT NAME
LETTER
Dear Sir
I wish to inform you about the recent discussion paper by IASB titled “Disclosure Initiative – Principles of Disclosure” which besides other things highlights the various principles of effective communication which the various reporting entities (firms) need to adhere to. The various principles that are highlighted in that discussion paper are briefly highlighted below (AASB, 2017).
In view of the above proposed guidelines, it may be required in the future that the presentation of disclosures would have to be altered. As a result, the current disclosure regarding the plant, property and equipment might have to change to incorporate the above aspects.
One of the principles that would be relevant is that the format of the representation should be one that is best suited. The current disclosure regarding the plant, property and equipment does not adhere to the best format. As a result, this information can be better represented in the following manner.
Also, the depreciation information should be represented separately in a methodical manner whereby the asset value at the beginning of the year must be stated, disposals and assets bought should be adjusted and then after deduction of the depreciation expense relevant for the concerned financial year, the value of the assets at the end of the year need to be stated. Additionally, it is also imperative to present the information so to the users can compare the information with the previous periods. This is quite relevant for the fixed assets and thereby in the relevant notes to account, there should be a comparison in a tabular format for atleast two years which would provide the user an opportunity to compare the various entries with corresponding entries in the past besides providing an entity.
It is essential to note that changes in the presentation would not be limited to disclosures related to plant, property & equipment but would extend to disclosures related to other aspects of financial statements as well. It is expected that these changes in the presentation would enhance the communication of key information to the users of the financial statement and thus would prove beneficial over the long term.
We would keep you notified of any updates in this regards and would be also willing to help in making the shift if and when required.
References
AASB (2017) Disclosure Initiative – Principles of Disclosure [online] Available at https://www.aasb.gov.au/admin/file/content105/c9/ITC35_04-17.pdf [Accessed April 16 2018]
E&Y(2017) Disclosure Initiative – Principles of Disclosure [online] Available at https://www.ey.com/Publication/vwLUAssets/ey-disclosure-initiative-principles-of-disclosure-april/$FILE/ey-disclosure-initiative-principles-of-disclosure-april.pdf [Accessed April 16 2018]
IAS (n.d.) Disclosure Initiative – Principles of Disclosure [online] Available at https://www.iasplus.com/en/projects/major/principles-of-disclosure [Accessed April 16 2018]
IFRS (2017) Snapshot: Disclosure Initiative—Principles of Disclosure [online] Available at https://www.ifrs.org/-/media/project/disclosure-initative/disclosure-initiative-principles-of-disclosure/discussion-paper/education-materials/principles-of-disclosure-snapshot-2017.pdf/ [Accessed April 16 2018]
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