Peter Williams – Cutting the weight of disclosure

‘GAAP 2000 UK financial reporting’ – the just published tome from Deloitte & Touche’s technical bods – weighs in at 2kg. You would imagine author Ken Wild would be proud of his doorstopper, but in fact he says regulations covering accounts are too bulky.

According to Wild, no one is to blame for this explosion from 250 pages of disclosures in the 1970s to over 1,500 pages today. A variety of bodies – such as the government, the Accounting Standards Board and the Stock Exchange – have the power to keep adding new disclosure requirements.

And specialist groups can also push for more detail in the notes.

And yet as every finance director knows, while Ken and his colleagues can make a comfortable living ensuring companies comply with every last jot of mandated disclosure, the actual number of shareholders bothering to read this mass of detail in reports and accounts is falling in inverse proportion to the increase in disclosure.

Wild’s answer is to suggest that those responsible for piling on the details should make a deal so that no additional disclosure is allowed unless an existing disclosure is discarded. That sounds fine in theory, but it would be hard to see how it would work in practice.

The explosion of financial reporting disclosure reflects the fact that the financial world has become infinitely more complex over the last three decades.

No amount of wishful thinking will reverse this trend. But there are ways around the problem. The ASB is currently revising its Financial Reporting Standard for Smaller Entities. Under the FRSSE, smaller companies – those with turnover of under £2.8m – can virtually forget about additional disclosure requirements imposed by the four most recent financial reporting standards on larger companies. This exemption for smaller businesses is right and proper.

In the end good financial reporting reflects the economic reality. Simpler businesses can get away with simpler financial reporting structures. But large complex businesses, their advisers and shareholders must learn to live with an ever-growing regulatory burden.

– Peter Williams is a freelance writer and director of Kato Publishing.

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