Accounting policy disclosure: practice in South Africa

English: This study has been conducted against the background of the perceived decreasing usefulness of financial statements in the decision making process of users. The perceived decline being a result of the increasing volumes of disclosures in complete sets of financial statements that have been prepared in accordance with International Financial Reporting Standards (IFRS). The purpose of this study was to determine whether or not the increase in the volume of financial statement disclosures, and thus the decrease in the usefulness of financial statements in the decision making process of users, can be attributed to the inclusion of generic, boilerplate accounting policies, in the financial statement disclosures. This study attempted to contribute towards the debate on the reasons for the so-called “Disclosure Problem” that is deducting from the usefulness of financial statements and to provide potential solutions in addressing this issue. The literature review of this study addressed the following: 1) the history and development of the accounting process, a complete set of financial statements and financial statement disclosures; 2) the technical considerations with regards to accounting policy disclosures; 3) the perceived nature of accounting policy disclosures today and 4) the review project conducted by the Institute of Chartered Accountants of Scotland (ICAS) and the New Zealand Institute of Chartered Accountants (NZICA), per request of the International Accounting Standards Board (IASB), as well as the Disclosure Initiative being conducted by the IASB in response to the perceived Disclosure Problem. Following the literature review, a document analysis of the complete sets of annual consolidated financial statements of South African companies, listed on the JSE within the Consumer Goods sector with financial year ends of no earlier than 28 February 2015, was conducted. The document analysis commenced with the determination of the significance of disclosed accounting policies in relation to a complete set of annual financial statements. This was done in order to determine whether disclosed accounting policies constitute a financial statement component that is sufficiently significant to have a material impact on the volume of disclosures, included in complete sets of financial statements. After the determination of the significance of disclosed accounting policies, an in depth analysis of the nature of disclosed accounting policies of the companies in the population, was performed. This analysis had the purpose to determine whether the significant accounting policy disclosure component, that can notably influence the volume of financial disclosures, is deemed to be generic or specific in nature. Disclosed accounting policies deemed to be generic are seen as unnecessarily increasing the volume of financial statements disclosures and are thus a possible reason for the decreased usefulness of financial statements in the decision making process of users. From the literature review conducted, it was evident that there is a perceived decline in the usefulness of financial statements in the decision making process of users. This is attributable to the increasing volume of disclosures to the annual financial statements that is prepared in accordance with IFRS. The results from the empirical study indicated that: 1) disclosed accounting policies do constitute a component of the financial statements that can significantly influence the volume of disclosures thereto; and 2) disclosed accounting policies of the population tested, include a notable percentage of generic accounting policies. These generic accounting policies unnecessarily increase the volume of disclosures that in turn decrease the usefulness of financial statements in the decision making process of users. In addition to the conclusions reached from the literature review and the empirical study, recommendations for addressing the issue of inefficiencies in current disclosure practices are made. Recommendations for possible future research to be conducted in this field are also made. The study contributes to the debate regarding the “disclosure problem” and provides insights on and support to the projects, such as the Disclosure Initiative, that is currently being conducted by the IASB to address the issue on hand.