The $50bn Red Pen: Why Financial Statements Need a Clean-Up
Why $50bn Red Pen?
The phrase symbolises the widespread inefficiencies caused by excessive disclosures in financial reporting. While the number is illustrative, it reflects the potential billions lost across time, audit effort and decision-making delays when financial statements become cluttered with information that lacks relevance.
Corporates may be meeting the disclosure checklist approach of the accounting standards requirements, but many are missing its spirit. Speaking at Caseware’s latest Speaker Series, Carmen Ridley, a leading expert in Australian Accounting Standards, challenged finance professionals to critically assess the content of their IFRS / AASB financial statements. Her central concern was that excessive disclosures are undermining the usefulness and readability of financial statements and obscuring the information that users actually need.
The issue is not one of non-compliance. Rather, it stems from inertia. Companies continue to roll over templates from prior years, including accounting policies and disclosures that may no longer apply. “You see entities disclosing policies on goodwill that hasn’t been on the books for five years or describing revenue recognition in ways that do not reflect their actual business operations,” Ridley said.
The financial cost of this inefficiency is difficult to measure precisely, but the burden is real. Across thousands of businesses, the time spent preparing, reviewing, auditing, and restating unnecessary content in financial reports could represent a cumulative cost well into the billions. As pressure grows on compliance budgets and assurance fees, the case for streamlining is not just academic. It is economic.
Problems with the status quo
The drive to comply has often been mistaken for more information is better when in reality less useful, tailored information is generally much more beneficial.. We currently see a proliferation of boilerplate text and standardised disclosures that meet formal requirements but fail to inform without hunting through lots of words and pages of clutter.
Key issues identified include:
Materiality misunderstood
Information is often included simply because it appeared last year, rather than because it is relevant to this year’s transactions or conditions.
Excessive reliance on templates
Many accounting policies are repeated directly from standards without tailoring to the specific operations or judgments of the entity and the changes from significant accounting policies to material accounting policy information in IAS 1 / AASB 101 Presentation of Financial Statements have been ignored or applied through a change in name only.
Obscured insights
Important information can be buried under layers of immaterial / unnecessary text, making it difficult for users to interpret key financial positions and results.
Limited user engagement
Lengthy reports discourage users from reading or understanding them, particularly in sectors such as not-for-profit or small to medium private entities, where stakeholders are often not accounting experts.
Ridley highlighted that effective financial reporting is not just about inclusion. It is also about exclusion. The core question that should guide preparers is whether each disclosure aids a user’s understanding of the entity’s financial performance and position.
Regulator and standards body support
Ridley’s argument aligns with recent commentary from both ASIC and the International Accounting Standards Board (IASB). ASIC has explicitly advised against including immaterial information that may add clutter. The IASB has revised the definition of materiality to address the problem of obscured information, incorporating the idea that even truthful disclosures can be unhelpful if they hinder the visibility of what matters most.
The move from “significant accounting policies” to “material accounting policy information” under revised AASB 101 is a case in point. Entities must now assess not only whether a transaction is material, but also whether the associated accounting policy adds any interpretive value which is specific to the entity rather than a regurgitation of the accounting standard requirements.
Practical approaches
Ridley encouraged preparers to read their own existing financial statements with fresh eyes before they prepare the next set. Starting from page one, practitioners should identify text that fails to add insight, repeats what is stated in the accounting standards, or simply restates what is visible on the face of the statements.
This is not a call for a wholesale rewrite every year. Instead, it is about investing time once to create a leaner, more effective reporting base that can be updated rather than perpetually replicated.
Tools that support better reporting
For organisations looking to take practical steps toward cleaner financial statements, technology can assist. Caseware Financials, part of the broader Caseware suite, includes structured templates and configurable notes designed to support the application of materiality and entity-specific relevance in disclosures.
The tool provides a framework that allows users to tailor reports according to the nature and complexity of their operations. While it does not replace the professional judgment required for IFRS reporting, Caseware Financials is built to encourage a more disciplined, consistent and streamlined approach to financial statement preparation.
By helping preparers focus on disclosures that truly matter, the software aligns with the broader objective articulated during the webinar. Financial reports should not just be compliant. They should be readable and useful.
Financial statements are not an end in themselves. They are meant to support decision-making, reflect accountability and convey financial results. When disclosures fail to meet these objectives, the value of the report is diminished.
Ridley’s final message was pragmatic. “You do not need to overhaul everything in one go. But if you can remove even a few pages of unnecessary disclosure, you are already improving the clarity and usefulness of your financial statements.”
This is not a matter of aesthetics. For companies, investors, regulators and auditors alike, clarity in reporting translates to efficiency, transparency and trust.
Organisations seeking to streamline their financial reporting practices can explore how Caseware Financials supports a more material, relevant, and efficient approach. For further information or to request access, visit our website or contact the Caseware team to discuss how the platform aligns with your reporting needs.
