Audit committee’s role in disclosure effectiveness
BoardMatters Quarterly – Volume 8
Making financial disclosures more effective has increasingly become a focus area for regulators and standard setters across the globe. The implementation of Ind AS is making the disclosure process more complex and onerous.
Ind AS (IFRS converged standards) contains a significant number of additional disclosure requirements vis-à-vis Indian GAAP. These disclosures will increase the transparency and accountability of financial statements. They will put additional onus on entities, including their boards and audit committees, to ensure that the estimates and judgments made are justifiable, considering that they are publicly accountable for them.
A top-down commitment throughout the organization is necessary to sustain focus on improving the quality of information provided to investors. Audit committees can play a pivotal role through the below steps:
- Work with management to instill a disclosure mind-set, bearing in mind that repetition and immaterial disclosures are areas for improvement
- Focus on the general manner of presentation and wording of financial communications for clarity, transparency and the use of plain English
- Challenge management to be innovative and enhance an understanding of financial reports by streamlining these
- Provide helpful inputs on the scope and extent of disclosure effectiveness efforts
- Encourage the management to make meaningful changes in disclosures by creating a framework that enables the systematic implementation of leading practices based on the distinct information needs of various stakeholders