Perspective on Disclosure Overload and Complexity: Hidden in Plain Sight

The topic of disclosure overload and complexity has been addressed by multiple organizations over many years. KPMG and FEI recently undertook a significant research effort addressing this topic. 

Our research consisted of three major activities: 1) reviewing relevant academic and other literature, 2) reviewing annual reports on Form 10-K filed by 25 FORTUNE 100 companies and 3) sending a survey to 6,500 financial executives.

Our goal was to obtain empirical evidence about disclosure expansion over the last six years, determine some of the sources of the expansion and consider the qualitative value of disclosure observed in the annual reports. Additionally, we explored the question of whether more disclosure is always good or whether there are factors that limit the value of expanded disclosure.

Based on the research results, we presented eight recommendations that address the disclosure, complexity and volume challenges. A positive note is that the FASB has indicated that it will issue a discussion paper in connection with its Disclosure Framework project in the near future. A summary of the recommendations follows below.

1) The SEC should issue an interpretive release to address the permissibility of cross-referencing and manner of addressing immaterial items to reduce redundant and unnecessary disclosures.

2) Summaries of significant accounting policies and discussions of newly implemented or soon to be implemented accounting policies should be streamlined to eliminate unnecessary redundancy and patently immaterial disclosures.

3) Preparers should expand their use of tabular and graphic information delivery formats.

4) The SEC should move forward with its 21st Century Disclosure Project to enable greater use of technology to avoid unnecessary repetition of information in multiple filings.

5) The FASB should accelerate consideration of the Disclosure Framework to establish a systemic approach to disclosure that properly balances disclosure considerations.

6) Preparers should confine disclosure of risk factors to company specific unique risk factors as contemplated by Item 503(c) of Regulation S-K.

7) Accounting standards that mandate disclosure in interim period financial statements should include provisions similar to that found in Regulation S-X that specifically permits omission of disclosure where there has been no significant change in the item since the date of the latest annual financial statements.

8) The FASB and SEC should undertake incremental procedures to ensure that there is an appropriate and adequate cost benefit analysis in support of all new disclosure requirements. This should include expanded field testing of disclosure proposals.