Disclosures in financial statements

Auditors are required to express an opinion on the financial statements as a whole. This includes the notes to the financial statements which are an integral part of the accounts, providing additional information on balances and transactions and other relevant information. Therefore, it is important that during all stages of the audit the auditor gives appropriate consideration to, and plans to obtain sufficient and appropriate audit evidence in relation to the disclosures made in the notes to the financial statements.

ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing specifies that the financial statements include related notes which ‘comprise a summary of the significant accounting policies and other explanatory information’.

The notes to financial statements contain different types of information, some quantitative and some qualitative, as required by IFRS. Some examples are given below:

Quantitative disclosures:

• Disaggregation and analysis of balances and transactions included in the financial statements, for example of property, plant and equipment, intangible assets, provisions, lease obligations, financial instruments.
• Segmental analysis of revenue, profit and certain other items, and information about major customers (for listed companies).
• Summarised financial information in relation to associates and joint ventures.

Qualitative disclosures:

• Descriptions of significant accounting policies and areas where critical accounting judgement has been exercised, and rationale for any changes in accounting policies.
• Confirmation that the going concern assumption is appropriate, or discussion of significant doubt over going concern.
• Information on related parties, and related party transactions.
• Explanation of impairment losses recognised in the year.
• Discussion of areas of risk, for example those relating to financial instruments.

A key driver for the IAASB’s consultation and the exposure draft, Addressing Disclosures in the Audit of Financial Statements, issued in May 2014, is that in recent years, IFRS requirements in relation to disclosures in the notes to financial statements have become more onerous. The exposure draft states that ‘over the past decade, financial reporting disclosure requirements and practices have evolved. They now provide more extensive decision-useful information that is more detailed and often deals with matters that are subjective such as assumptions, models, alternative measurement bases and sources of estimation uncertainty.