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November 14, 2011

US has financial disclosure overload: KPMG

Financial disclosure expansion over the past six years has resulted in problems of disclosure overload and complexity, according to a new KPMG US report.

The report, ‘Disclosure overload and complexity: Hidden in plain sight’  surveyed 216 companies and also looked at academic literature and analysis of annual reports filed by 25 Fortune 100 companies. It aimed to discover some of the sources of expansion, the qualitative value of disclosure in the Fortune 100 annual reports and the value of expanded disclosure.

Analysis of annual reports found that disclosure increased by 16% while footnote disclosure grew by 28% over a six-year period.

Footnote disclosure was prevalent in pensions and post-retirement benefits, fair value, financial derivatives and hedging areas.

Financial executives confirmed these findings, indicating the complexity of financial standards (92%) and the volume of mandated disclosures (89%) were major contributors to disclosure complexity.

Disclosure overload was caused by increasingly complex transactions, investments, financial instruments and relationships.

The report also found that companies can provide immaterial disclosures if the SEC, other regulators and external auditors have objections to their financial information.  Financial reporting preparation and review time are the most affected by disclosure expansion.

 

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