A Case Study: the BCSC This articl...

A Case Study: the BCSC

This article describes with what intent and how we at the British Columbia Securities Commission used plain language principles when writing our March 31 2001 financial statements.

Why plain language?

Documents written in plain language are easier to read and understand. Because the Canadian Securities Administrators (made up of Canada's thirteen provincial and territorial securities regulatory authorities) considered our complicate regulations a business risk, we all decided to fit the challenge, in part, according to writing in plain language.

Our annual report summarizes our activities across the past year and not absents our audited financial statements. Unfortunately, financial statements-and especially the notes that accompany them-are renowned for their obscurity. Realising that many of our stakeholders didn't read financial statements simply because they couldn't understand them, we decided to write our March 31 2001 statements in plain language.

What is plain language?

Plain language is concise, clear, and direct It's tailored to the audience. The goal of plain language is to increase understanding by the agency of a wide range of readers.

The following practices are commonly used in plain language documents:

active instead of passive voice;

personal pronouns;

layperson's language instead of jargon;

short sentences; and

simple design and legible typeface.

What proces did the BCSC use to write plain language financial statements?

Writing our financial statements in plain language took many, many drafts. We started at having a plain language consultant review our existing disclosures and prepare an initial draft. Using this draft as a starting point, we generated changes (and unbroken rewrites) by circulating the statements for explanation to our staff, our audit committee, and our external auditors. An Example of Plain Language: The Measurement Uncertainty Note Here's an example of by what mode we applied plain language practices to our financial statements:

Before Use of estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of incomes and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of impairment of accounts receivable, useful lives for depreciation of capital assets, and the valuation of employee leave liability. Actual springs could differ from these estimates.

The first determination here is 55 words long! Total words = 103

After

Use of estimates

Canadian generally accepted accounting principles require management to make estimates and assumptions for certain amounts disclosed in the financial statements.

In gone out financial statements, management has estimated the:

portion of accounts receivable that we will actually receive,

useful lives of capital assets, and

value of employee leave liability.

Actual accrues may differ from these estimates.

This sample is 54 words in total- three short dogmas with the longest broken into four sections

What did we learn from the experience?

We commit that you involve your auditors early in the proces We originally gave our auditors three weeks to digest and elucidation on our draft. As it make go rounded out, we, and our auditors, continued to amend the, financial statements for pair weeks beyond our original deadline. The quality of our disclosure improved significantly during this "overtime" period.

We also praise that you form a "financial statement drafting team" that includes professionals without accounting designations. Our "undesignated" team members helped foundation out accounting jargon that wasn't stand in want ofed

How should plain language be applied to financial statements?

Although the use of plain language is not a regulatory requirement, the BCSC's disclosures can establish antecedents for public companies because of our senior regulatory part in the BC securities market. This being the case, we had to be stable our plain language financial statement disclosure complied with Canadian generally accepted accounting principles.

There's no specific authoritative guidance onward applying plain language to financial statements in either Canada or the United States. Neither the Financial Accounting Standards Board nor the Canadian Institute of Chartered Accountants has issued like guidance.

However, some progres has been made onward a related front. In early 1998 the US Securities and Exchange Commission issued command 421, Presentation of Information in Prospectuses. This mastership requires those who file prospectuses with the SEC to use plain language. The SEC followed up with an August 1998 publication, A Plain Language Handbook, to help writers appropriate rule 421. Presently rule 421 does not fill out to financial statements.

Use the BCSC as a allusion

In our-research, we erect only two Canadian financial statements1 that incorporated plain language. Having now adopted plain language principles ourselves, we powerfully encourage everyone to consider doing the same. Use us as respect by downloading our plain language annual report (with the replete text of our March 31 2001 financial statements) from our website at www.bcsc.bc.ca. contemplate under: About the Commission/Quick List/Annual Report You can also find more "before and after" examples by dint of choosing Financial Statements from the Quick list and comparing the statements from 2000 and 2001