Can dissimilar information be aggregated at overall reporting organization level in a meaningful way?
What is material at local level may not be material at global level. In this respect economies of scale work against the principle of subsidiarity. And when material topics have been identified from a global perspective, what level of detailed information should be provided on each material topic? What constitutes conciseness – versus information overload and clutter – in a particular disclosure venue or reporting format?
When should information rather be reported by component and materiality assessed at the level of (sub)components, specific accounts or specific classes of transactions? To be considered is whether misrepresentations, including misstatements or omissions, are material individually and/or in combination (considering its impact on the organization or corporate group as a whole and its overall statements).
The related question is one of the efficiency and cost-effectiveness of reporting by group as well as by subsidiary. Professional bodies such as the Financial Reporting Council in the UK have raised concerns about the requirement in some countries to have lengthy GAAP disclosures prepared and filed for each subsidiary, which can have a high incremental cost. One reason for this is the need to apply lower levels of materiality at subsidiary level. The additional complication of different national approaches has added to the drive for convergence in standards internationally, for example the convergence between IFRS and US GAAP initiated in financial accounting during the 2000s.
Of key concern, one would expect, is the needs of report users. Would for example the investors of the reporting organization prefer greater granularity of information? Do creditors prefer to have financial performance information disclosed at subsidiary level as well? How best can a multinational enterprise communicate its performance in context, covering cases and performance information from operations of different regions and various countries?
Explaining the principled requirement of sustainability context, GRI G4 refers to presenting performance in a manner that communicates the magnitude of its impact and contribution in appropriate geographical contexts. In its IR Framework, the IIRC advises that an organization disaggregates (or aggregates) information to an appropriate level considering, in particular, how senior management and those charged with governance manage and oversee the organization and its operations. It notes that this commonly results in presenting information based on the business or geographical segments used for financial reporting purposes.
The matter of detail or disaggregated, granular information is related to complaints by report users of “carpet bombing”, “take the lot” approaches and “too much clutter”. With the Association of Chartered Certified Accountants (ACCA), the IIRC has initiated research on a perceived tension between ‘completeness’ and ‘conciseness’. Its International Framework includes the guiding principle of “reliability and completeness” (covering “all material matters, both positive and negative”) as well as the guiding principle of “conciseness” (providing sufficient context “without being burdened with less relevant information”). Deciding the level of specificity, the organisation may provide links to more detailed information (such as full financial statements) provided elsewhere.
One source of confusion is where the IASB, IIRC and GRI use similar terms in different ways. An example is ‘completeness’. The IIRC views completeness as covering all material matters. The GRI views completeness as referring to scope (covering economic, environmental and social impacts), boundary (all relevant entities inside/outside the organisation) and time (information covering the full period specified by the report). What the IIRC’s Framework calls “conciseness” is called “level of coverage” by GRI G4 in doing prioritisation, referring to the prominence, amount of data and narrative explanation disclosed. The graphic figure below seeks to illustrate the fit between these concepts.