Five steps to simplifying financial statements

CPA Canada has published a guide that will help managers, auditors and practitioners create easy-to-read, useful financial statements.

Increasingly complex transactions. A heightened regulatory environment. Ever-expanding standards containing more disclosure. A checklist mentality toward financial statement preparation. “This is today’s business reality and it’s leading to complicated financial statements,” says CPA, CA Alex Fisher, principal, International Financial Reporting Standards, at CPA Canada. “Financial statements are supposed to be core communication tools but too often they contain unnecessary information or poorly presented information,” he says. “This makes them less useful than they could and should be. If users can’t find what they need, then they aren’t benefiting and we need to revisit what we’re providing.”

In order to address disclosure overload, CPA Canada has created the guide “Five steps to simplifying financial statements — today.” The steps are in the context of IFRS but can be applied equally to financial statements prepared under other accounting standards. These best practices help management, auditors working with management and practitioners advising management to create easy-to-read, useful financial statements. Specifically, these steps provide practitioners with a framework and opportunity to actively engage with management. They provide practical advice that can be implemented immediately, with very little investment of time, money or other resources. Fisher, a co-author of the publication, breaks down what you need to know.

Step 1: make financial reporting strategic. View financial reporting as an opportunity to benefit from something you have to do anyway. Beyond meeting regulatory requirements, why are you reporting? To build goodwill? To gain trust? To attract investors?

Identifying why you are doing it and who you are doing it for will allow you to decide what you need to include and how. Once you recognize that good financial communication is a strategic advantage, you can make it a priority.

Step 2: focus on materiality. There is a misperception that just because something is a disclosure item you have to disclose it. You don’t. Everything should be done within the context of materiality and relevance. Materiality also applies to the notes and how much you describe. Talk to the stakeholders who will be using the statements and ask specifically what’s relevant to them in their decision-making.

Step 3: refine formatting and presentation. Be well organized. Use more headings, subheadings and tables. Make it possible to download the statements in portions. Group connected information together. Include cross-references between the statements and notes. The key is to think like your readers and make it easy for them to find what they need. In many cases, less is more.

Step 4: apply a truly condensed approach to interim reporting. Interim reporting under IFRS gives you an option: you can produce a complete interim report (similar to a year-end report) or you can do a condensed report, focusing on what’s new and/ or different.

Condensed means exactly that — you are allowed and encouraged to put less in the interim report. Most companies do too much.

Step 5: keep looking ahead. You’re not alone in wanting to simplify reporting. Regulators, standard-setters and auditors — to name a few — are investigating how they can make financial reporting more meaningful. With that in mind, monitor how standards are changing. This is not a static process. Change is coming. The International Accounting Standards Board already has a number of initiatives looking into how dis- closures under IFRS can be streamlined.

For more information, visit to download a copy of “Five steps to simplifying financial statements — today” and to view a short video. The publication also includes 20 questions preparers should ask themselves about how to simplify financial statements.

“Everyone has a role to play here — regulators, standard-setters, auditors — but management has the most power to act immediately,” says Fisher. “These five steps can help you and your stakeholders benefit from more effective financial statements today.”