Users at FASB’s Forum Discuss “Aunt Millie” and Their Lack of Concern about Disclosure Overload

There’s been a lot said by practitioners about disclosure overload, but it turns out that financial statement users aren’t complaining about it.  In fact, they say that’s not a problem for them!

Financial Statement users don’t quibble about consuming thousands of pages of information, according to comments made by several users during the Financial Accounting Standards Board’s forum on its disclosure framework Dec.1. “I work with institutional investors and I’ve never really heard them complain about the volume of footnote disclosures or MD&As,” said Jack Ciesielski, owner of R.G. Associates, Inc., an investment research and portfolio management firm located in Baltimore.

Investors generally make good use of technology to gather the amount of information they desire to consume, and therefore don’t complain about the bulk of it, other than to ask for more, he said.

As far as the FASB’s project on the disclosure framework, analysts may in general comment about the lack of clarity around an accounting disclosure requirement--such as those surrounding derivatives in relation to the balance sheet and income statement, Ciesielski stated, “but by and large we don’t hear them say ‘boy we’d really like to see less’—that would be a very anomalous reaction,” he said.

Able to Consume Tons of Information.

The amount of information analysts consume can be novel-like, said New Constructs CEO David Trainer, but there’s not a lot that they would say to take out. 

In fact,  consuming bulky information, thousands of pages of it; 16 hours a day, every day of the year, poses no problem for them, said FASB member Harold Schroeder. Schroeder said during his service as a user, pre-FASB, his team of three people consumed about 300,000 pages of information a year. “And that was just financial information,” he said.

Similar thoughts were echoed by panelist Sandra Peters, head of CFA Institute’s financial reporting policy group.  “I agree with David that we should dispel with the notion of overload because as someone who represents an investor group, I feel like I’m overloaded with information and I have an insatiable appetite for information all at the same time,” said Peters.  “And I don’t know how I can be both of those things simultaneously, but that’s continually what we hear,” she said.

Apologies to Aunt Millie…

The disclosure conundrum might stem in part from the confusion of preparers and auditors about how financial statements are actually used and who should be the target of the disclosures, some panelists said. 

Peters said most auditors and preparers have never met a professional investor.  “You can’t communicate if you don’t understand who your audience is,” she said.

Standard-setters and regulators need to be clear about whether disclosures should be targeted to institutional investors or to “Aunt Millie,” the fictional character referenced by former SEC Commissioner Elisse Walter as the target of them, a number of panelists said. Institutional investors, as opposed to the "Aunt Millie"-type investor should be the target, they said.

“All due respect to former SEC commissioner Elisse Walters who talked about her Aunt Mille—she wondered if her Aunt Millie would understand the disclosures—I don’t think that Aunt Millie ought to be the target audience,” said Keith Higgins of the SEC's division of corporation finance, who clarified that he spoke on his own behalf.

“Some might argue it should be the alpha investor who has the team of analysts able to burrow through the information, after all those are the people who are setting the stock price; those who are trading the stock,” he said.

Higgins said that all investors benefit from information in the marketplace, and therefore the target investor would have reasonable market knowledge. “I don’t know there’s a single investor, but it’s not intended to be a primer on finance 101,” he said.

Expanding on Higgins’ comments, Peters said the disclosures would need to target professional investors because there wasn’t clarity regarding the “Aunt Millie” type of investor. 

“I agree its professional investors, because I don’t know who Aunt Mille is, because I don’t know how she invests--,” Peters said.