De-cluttering: Will History Repeat?

According to Part 9 of the Civil Code, the annual accounts and management report must give a true and fair view. Of assets and outcomes, but also about risks and prospects. The information to be provided for this purpose is further elaborated in Annual Reporting Guidelines, International Financial Reporting Standards (IFRS) and soon in Standards issued on the basis of the Corporate Sustainability Reporting Directive.

RJ and IASB contribute to the quality of external reporting by developing reporting standards that ensure transparency and accountability by the organization and information relevant to the decision-making of stakeholders. They do so in a body in which users, providers, and accountants are represented. They use a rigorous process where stakeholders can contribute to setting the agenda and provide input on the draft standards. The Chamber of the Corporation emphasized that if the company complies with the annual reporting guidelines, it can assume that it has provided the insight referred to in the law not without reason.

Despite this process, about ten years ago, concerns arose about the quality of reports based on those guidelines and standards. The main problem is the increasing number of disclosures and their negative impact on the accessibility of relevant information in the financial statements. For example, the UK’s Financial Reporting Council (FRC) expressed concerns in 2009 about the increase in length, detail and complexity, but also the resulting decline in the importance of annual reports. The Accounting Standards Board (ASB) released the report later in 2011 cut the chaos that mentioned it Noise (junk) undermines the usefulness of annual reports by withholding important information: “Clutter undermines the usefulness of annual reports and accounts by withholding important information and preventing a clear understanding of the business and the issues it faces.“

The European Financial Reporting Advisory Group (EFRAG) also found that notes to the financial statements had become unmanageable and that the quality of information had deteriorated due to overinformation. In the Netherlands, for example, Eumedion requested in its 2013 spearhead letter not to include an exhaustive list of all potential risks to the company, but to limit this overview to the most significant (“highest”) risks.

In response to these stakeholder concerns, the International Accounting Standards Board has launched several projects. This led, among other things, to a modification of IAS 1, which now states that companies should not hide material information among immaterial information. In addition, a project is being worked on to come up with a new approach to the formulation of disclosure requirements, giving companies more room to judge in order to achieve a reduction in disclosure requirements. modular information and increase the relevance of the information reported. This should lead to shorter annual accounts that are more to an extent, to a degree Dealing with material matters in which less important matters are left out.

So far, so good. Unless, of course, you are a big fan of challenging search images where you really have to do your best to discover relevant information in a huge document. Fortunately, there is always a control statement for these enthusiasts. against the cut the chaosThere are several proposals for its development, by adding paragraphs regardless of their special importance to the audit, the auditing organization and its stakeholders.

The NBA Board of Directors has already decided that every auditor’s report should include a paragraph about the work the auditor is doing in relation to fraud risk and the risk of going concern or not. Eumedion added in a recent letter that it also requires a paragraph in each auditor’s report on the auditor’s work with respect to climate risk.

How long will it take before the standard cyber security paragraph, diversity paragraph and culture paragraph are submitted in the auditor’s report? In the final consultation, the NBA also asks whether (non-compliance with) laws and regulations should be given a standard place in the auditor’s report. But isn’t the essence of the audit, as described in NV COS 200, that the accountant checks whether the annual accounts comply with legislation and regulations? It is not without reason that NV COS 250 in paragraph A12 refers to laws and regulations regarding the form and content of financial statements, sector-specific issues related to financial reporting and transaction accounting. A section in the auditor’s report on work that focuses on the risk of non-compliance by the audited organization with relevant laws and regulations, it will have to at least indicate the work performed to audit the financial statements and the information to be included. In the thick of extra paragraphs, you might almost forget that this is basically what an annual audit is all about.

While the importance of the above topics is obvious to me, stuffing the references report is not the answer. in a delicate process, standard setters It specifies what information organizations must provide about these matters in order to appropriately inform stakeholders. A trade-off is also made between interest and information-overload. If the company does not provide the information necessary to obtain a correct and fair view, the auditor must, of course, express this in the auditor’s report; That is, by modifying the opinion which provides for the omission. If the result cut the chaosInitiatives related to the annual accounts are nullified by stuffing the auditor’s report with normative paragraphs, which invalidates the purpose.

Explanations of key audit issues are helpful, but let the auditor focus in the auditor’s report on explaining the most important, key audit issues. If we don’t, I expect the following in a few years cut the chaosThe initiative can be started, i.e. in connection with the unbridled growth of the auditor’s report. The good news is that reports for this are already on the shelf and can be released again with limited modification.