The Financial Reporting Council has published the findings of its review into IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, which has been identified as a frequent problem area.
It revealed provisions and contingent liabilities reporting is of “particular importance” to investors, owing to the “forward-looking” information it can provide about a company’s exposures.
According to the FRC, issues relating to the area have featured in the FRC’s ‘top ten’ findings for several years.
The firm said there was “general scope for improvement” in several areas including: the disclosure of quantitative information on expected timing of future economic outflows, the key assumptions used to estimate those outflows, and the associated uncertainties.
The FRC also said the review identified opportunities to clarify the nature of the costs included in certain types of provision, to disclose more specific accounting policies and to provide more quantitative information about contingent liabilities.
The issues giving rise to provisions and contingent liabilities are often long-term, such as climate change or significant to the assessment of future business performance.
Carol Page, FRC’s corporate reporting review director, said: “The reporting of provisions and contingent liabilities is of particular importance to investors and other users of accounts in understanding the longer-term financial effects of climate change and other risks to companies’ prospects.
“Companies should carefully consider the findings of our review and take appropriate steps to improve their reporting, consistent with our expectations.”
Marianne Mau, ICAEW’s technical lead for financial reporting, added: “The report also reminds companies of the importance of consistency of information between the strategic report and the financial statements, and using cross referencing as appropriate to cut clutter in the accounts.”