In recent years the subject of accounting for financial instruments has received a great deal of coverage and public debate. This has been beneficial, to the extent that this has led to greater disclosures and recognition of the risks, and the valuations, of financial instruments that might otherwise have remained invisible. ED7 is proposing to extend the disclosures both qualitative and quantitative, but we would question whether there has been any very widespread view that the current level of disclosure is inadequate. Extra information is potentially useful but we question whether it is strictly essential in this case.
In reviewing the proposals in ED 7 item by item it is difficult to object in principle to any one extra requirement, (although we do highlight some points of detail below).
However taken as a whole they do add up to a significant extra amount of information, which will be burdensome on preparers and may even serve to muddle and confuse the users of the accounts as to what are the really important facts. Focusing on provision of data and analysis for financial items at the expense of attention to underlying business items is a trap for finance persons to guard against. If all the proposals in ED 7 are adopted we are in danger of giving excessive prominence to the risks from financial instruments and perhaps deflecting attention from the more important performance and risk factors in the main business of the reporting entity.
Disclosures on risks and sensitivities come close to turning into a forward looking statement. Certainly the qualitative disclosures on risks from financial instruments and the policies on capital would fit better in a general commentary format. This could be akin to the OFR (Operating and Financial Review) in the UK or the MD&A (Management Discussion and Analysis) in the USA. Accordingly we believe the IASB should defer consideration of the proposals in ED 7 until such time as it is addressing the wider subject of a standard or guidance for an MD&A. We also have particular specific concerns as regards sensitivities.
