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distinguish material from immaterial information.
Siemens therefore had the objective to actively turn
this trend around in the reports issued for its fiscal year
2015, while staying compliant with presently relevant
regulations. By particularly focusing on information
relevant for decision making, the volume of the
financial reports could be significantly reduced while
transparency increased at the same time.
To accomplish this goal, a bundle of measures was
used. The financial section of the annual report alone
could be shortened by over 100 pages. Much of the
information which is no longer disclosed in the annual
report, including e.g. the multi-year financial summary,
is nowmainly provided through other suitable channels,
especially the company’s internet presence. This new
approach was received positively by almost all user
groups.
But the companies’ approach to bundle information
which must be provided or to distribute it over various
channels of communication is only one way to make it
more understandable and more accessible to the users.
As a further step, a change of approach is needed from
those that decide in the first place which information has
to be disclosed and to which extent, which is the standard
setters and the regulators. It goes without saying that the
existence of strict accounting standards and disclosure
requirements as such are achievements which have to be
maintained by all means. But even here there is a need
to always weigh whether particular standards effectively
contribute to the desired transparency or whether they
rather achieve the opposite.
This is now truer than ever as the increase of regulations
has led to a phenomenon which in professional circles
is called “disclosure overload”. Standard setters and
regulators have recognized this in the meantime and
have started first initiatives which deal with approaches
to resolve these issues. However, numerous projects of
the standard setters in the past have shown that they
take a long time and often end with a compromise on the
smallest common denominator.
In order to work against “disclosure overload”, the
regulatory framework must be adapted. It would be
desirable if respective authorities and standard setters
accompanied a future development in this sense. Here
are three examples where a change of mind must occur:
• New respectively revised regulations should really
contain principle-based requirements rather than
numerous regulations of individual cases, which
make it possible to interpret the information
provided even without extensive additional
disclosures in the form of “footnotes”.
• The cooperation of the national and international
standard setters and regulators must be significantly
intensified. Indeed, several institutions set regulations
for companies, which partly leads to significant
redundancies. As an example, German disclosure
regulations for the use of performance measures in
the group management report which are not defined
in the accounting standards are being expanded by
new standards on the European level.
• Astringent analysisof costsandbenefitsof a regulation
should not only occur before the introduction of a
new disclosure requirement, but should also take
place regularly several years thereafter. The world is
changing continuously, many products and processes
are aging ever faster and are no longer necessary or
useful. Accordingly, accounting standards and other
reporting requirements should also be analyzed
regularly to determine whether the requirements are
still adequate.
Another development which is expected to lead to more
transparency will be introduced this year by the national
implementation of the European Union Directive on
external auditor reform: the expansion of the auditor’s
opinion by so-called key audit matters. In this new
paragraph, the external auditor in future will not only
have to report what was audited, but also how and
which areas of the audit needed particular attention.
In this case, it is worth the effort to look at examples in
Great Britain or the Netherlands, where the expanded
auditor´s report is already being applied. Depending
on the preparer and external auditor, there are great
differences as to the details of the explanation of the
external auditing procedures. Especially when these
explanations are extensive, it is not always clear at first
sight why the explanations are so detailed because
many of the auditing measures presented are difficult
to understand for the layman, but appear obvious to
experts. The expansion of the external auditor´s opinion
is to be welcomed as an additional contribution to
increasing transparency, but it should be limited to the
really material information.
Trust is the highest good of a successful capital market
communication.
from Frankfurter Allgemeine Zeitung, Frankfurt am
Main, Germany, April 11, 2016.
Article provided by GEFIU, The German IAFEI Member
Institute. Responsible for English translation: GEFIU,
the Association of Chief Financial Officers Germany.
Translator: Helmut Schnabel
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