• Discussed at April 2005 Joint IASB-FASB Meeting – Phases A and B*

  *Phases A and B are described in the notes to the Joint IASB-FASB Meeting of April 2005 (below)

• Discussed at May 2005 IASB Meeting – Phase A
• Discussed at June 2005 IASB Meeting – Phases A and B
• Discussed at October 2005 IASB Meeting – Phase A
• Discussed at October 2005 Joint IASB-FASB Meeting
• Discussed at November 2005 IASB Meeting – Phase A
• Discussed at January 2006 IASB Meeting – Phase A
• 16 March 2006: IASB issues Exposure Draft on Phase A - proposed amendments to IAS 1
• Discussed at March 2006 IASB Meeting – Phase B
• Discussed at July 2006 IASB Meeting – Phase B
• Discussed at September 2006 IASB Meeting – Phase B
• Discussed at October 2006 IASB Meeting – Phase B
• Discussed at December 2006 IASB Meeting – Phase B
• Discussed at January 2007 IASB Meeting – Phase B
• Discussed at February 2007 IASB Meeting – Phase B
• Discussed at March 2007 IASB Meeting – Phase B
• Discussed at May 2007 IASB Meeting – Phase B
• Discussed at June 2007 IASB Meeting – Phase B
• Revised IAS 1 issued on 6 September 2007 – Phase A
• Discussed at October 2007 IASB Meeting – Phase B
• Discussed at November 2007 IASB Meeting – Phase B
• Discussed at March 2008 IASB Meeting – Phase B
• Discussed at June 2008 IASB Meeting – Phase B
• Discussed at July 2008 IASB Meeting – Phase B
• Discussion Paper on Phase B published 16 October 2008
  Comment deadline is 14 April 2009
• Discussed at March 2009 IASB-FASB Joint Meeting – Phase B
• April 2009: Deloitte Letter of Comment on the discussion paper
• Discussed at July 2009 Joint IASB-FASB Meeting – Phase B
• Discussed at September 2009 IASB Meeting – Phase B
• Discussed at October 2009 IASB Meeting – Phase B
• Discussed at October 2009 IASB Meeting – Other Comprehensive Income [We have created a separate Project Page]
• Discussed at October 2009 Joint IASB-FASB Meeting – Phase B
• Discussed at October 2009 Joint IASB-FASB Meeting – Other Comprehensive Income [We have created a separate Project Page]
• Discussed at December 2009 IASB Meeting
• Discussed at January 2010 Joint IASB-FASB Meeting and IASB Meeting
• Discussed at 2 February 2010 Special Joint IASB-FASB Meeting – Other Comprehensive Income [We have created a separate Project Page]
• Discussed at February 2010 Joint IASB-FASB Meeting
• Discussed at Special 3 March 2010 Joint IASB-FASB Meeting
• Discussed at Special 3 March 2010 Joint IASB-FASB Meeting

IAS Plus Newsletters

• March 2006 – Special Global Edition – Proposals to Revise Presentation of Financial Statements (PDF 74k)
• October 2008 – IAS Plus Newsletter Explaining the Discussion Paper (PDF 208k).

Timetable

• Click for IASB Project Timetable

Background

This project addresses broadly the issues related to the display and presentation in the financial statements of all recognised changes in assets and liabilities from transactions or other events except those related to transactions with owners as owners (sometimes called comprehensive income). Thus, it will consider items that presently are reported in the income statement, cash flow statement, and statement of changes in equity.

Currently, IAS 1, Presentation of Financial Statements, permits but does not require a single comprehensive performance statement.

The IASB worked on this project from 2001 to 2004. In November 2004, the IASB and FASB jointly appointed a new Joint International Group on Performance Reporting to assist the boards in their joint project to establish standards for presenting, in the financial statements, information that is useful in assessing the financial performance of a business enterprise. The list of members is shown below. Click for IASB Press Release (PDF 42k). That press release said:

Discussion at the Joint IASB-FASB Meeting April 2005 – Phases A and B

At the 22 April 2004 joint Board meeting, the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) (collectively, the Boards) agreed to jointly conduct their respective projects on Performance Reporting and that the work should be performed in two phases:

The staff gave an update on the progress on the Joint International Group and noted that there had been some delays to date in setting out the necessary policies and procedures that they were expected to follow. There was some discussion amongst the Board as to the role of the JIG. It was concluded that they are not a decision maker but should be used in the consultation process by both the FASB and the IASB in forming decisions on performance reporting.

Required Financial Statements

The staff asked the Boards the following questions:

Question 1: What information should comprise a Full Set of Financial Statements?

• A statement that shows (at a point in time) balances of assets, liabilities, and equity as of the beginning of the period-referred to as a Beginning of the Period Statement of Financial Position.
• A statement that shows (at a point in time) balances of assets, liabilities, and equity as of the end of a period-referred to as the End of the Period Statement of Financial Position.
• A statement or two statements that show (for a period of time) the changes in assets and liabilities other than from transactions with owners in their capacity as owners-referred to collectively as a Statement(s) of Earnings and Comprehensive Income.
• A statement that shows (for a period of time) the changes in assets and liabilities from transactions with owners in their capacity as owners-referred to as a Statement of Changes in Equity.
• A statement that shows inflows and outflows of cash-referred to as a Statement of Cash Flows.

Question 2: Should individual Financial Statements within the Full Set of Financial Statements be shown with equal prominence to each other?

The IASB noted that there is currently a difference between IFRS and US GAAP in that under IFRS and US GAAP, certain information can be shown in the notes to the financial statements rather than in a financial statement format. However, it was agreed by the Boards unanimously that all individual statements should be shown with equal prominence.

Question 3: With regard to the Statement of Earnings and Comprehensive Income, should that information be presented as:

• (1) A single statement with a total representing all non-owner changes in financial position and no subtotal for net income or profit or loss. (The Pure Single Statement Approach);
• (2) A single statement with a total for non-owners' changes in financial position and a required subtotal called net income or profit or loss. (The Modified Single Statement Approach); or
• (3) Two separate statements broken down into a traditional Income Statement and a Statement of Other Comprehensive Income similar to that described in FASB Statement No. 130, Reporting Comprehensive Income, paragraph 22. (The Two-Statement Approach)?

There was extensive debate on this question and the following points were made:

• The staff recommended alternative (2) modified single statement approach as it provides the best layout of information for users.
• Certain Board members preferred alternative (1) pure single statement approach but recognised that such an option would require a greater degree of modifications in existing standards and create issues for items such as recycling which are to be dealt with in Phase B of the project.
• Some FASB members were strongly in favour of the pure single statement and felt that the issues to be debated in Phase B should be addressed earlier.
• There was concern that certain items that were currently presented outside of the statement of income (e.g. the Statement of Total Recognised Gains and Losses for UK companies) were given less prominence in considerations of analysts. Therefore, a single comprehensive statement of income was seen as a positive step to improved financial reporting.
• The IASB members noted that alternative (1), which would eliminate the concept of net income, would be a major issue for IFRS reporters, and that the alternative (2) modified single statement approach offered the best solution.

1. Items included in net income (profit or loss), and
2. Items excluded from net income (profit or loss) and therefore included in other comprehensive income.

In future deliberations the Boards will develop criteria or characteristics for determining which items that fall into each of the two categories.

Question 4: Based on the Boards' decisions on Questions 1 through 3, at this time, do the Boards prefer to make the proposed revision by amending their existing guidance rather than create a new replacement standard?

The Boards debated the merits of issuing a consultation document prior to an exposure draft on the above changes. It was stated that some of the proposals are a major change and therefore discussions would be required in order to persuade interested parties as to the merits of the Boards' recommendations. IASB members specifically noted that European and other IFRS adopters would be resistant to these changes if they felt the IASB are merely falling in line with the FASB.

A vote was taken and the Boards opted (by majority) for issue of an Exposure Draft (without discussion paper) with the proviso that round table discussions would be held.

Comparative Financial Statements

The staff introduced this topic and the need to eliminate existing differences between IFRS and US GAAP relating to the requirements for presenting comparative financial statements.

The staff asked the Boards the following questions:

Question 1: Do the Boards agree with the staff recommendation to require comparative financial information for all entities, and to limit the required information to two annual periods (the current and prior annual period)?

There was some debate regarding the SEC's rule for 3 years of financial information. The Boards voted (by majority) with the staff recommendation to require comparative financial information for two annual periods. Clarification was made (with reference to the full set of financial statements) that this would include 3 balance sheets and 2 sets of period statements (earnings and comprehensive income, cash flows and changes in equity).

Question 2: Do the Boards agree with the staff recommendation that the presentation of financial information by those entities that elect to provide information for annual periods beyond the required minimum should be encouraged but not be required?

The Boards determined that provision of financial information beyond the required two annual periods should not be encouraged. The rationale was that most jurisdictions (including standard setters, securities regulators, and stock exchanges) currently require comparative financial information for the prior annual period and, thus, would most efficiently achieve convergence. While true convergence may not be achieved for public entities, convergence will be achieved at least at the standard setters' level.

The Boards' main decisions may be summarised as follows:

The staff asked the Boards to consider specific questions noted below. The staff acknowledged that the Boards may have felt that certain questions had been debated before but the staff felt that clarity was required.

1. Is the Boards' objective to develop a single standard that would apply broadly to all entities?

The Boards agreed unanimously that this is their objective.

2. Do Board members agree that they should first develop a standard that would apply to entities other than financial institutions, and then consider the application of such a standard to financial institutions?

The Boards agreed unanimously that this is the best approach.

3. Do Board members agree with the staffs' approach regarding interim financial statements and notes to financial statements?

Because the staff believes the scope of this project never included fundamental reconsideration of interim reporting requirements or note disclosures, the staff plans to change existing reporting requirements only as needed through consequential amendments made necessary by Board decisions. The Boards agreed (by majority) with the staff.

4. Should the scope of this project include a comprehensive reconsideration of FASB Statement 95, Statement of Cash Flows, and IAS 7, Cash Flow Statements, including whether to require a particular method and presentation of the cash flow statement?

The Boards agreed unanimously that this question should be addressed in Phase B of this project.

5. Do the Boards believe that there are any additional topics that should be added to either Phase A or Phase B? If so, what are these additional topics and should they be addressed in Phase A or Phase B?

An IASB Board member stated that a statement of returns to shareholders should be considered as an additional part of the full financial statements. The Boards also highlighted that additional input from the financial services sector (specifically buy side companies) would be welcomed on the JIG.

6. Timing and Staffing Issues

The Boards agreed (by majority) with the staff proposal to continue with one joint staff team that would complete Phase A of the project through Board deliberations and working toward issuing an Exposure Draft addressing Phase A only. After that the staff will work toward the issuance of a public discussion document on only Phase B issues.

Discussed at the May 2005 IASB Meeting – Phase A

At the 21 April 2005 joint Board meeting, the FASB and the IASB agreed that non-owner changes in net assets (the Statement of Earnings and Comprehensive Income) should be presented in a single statement with a total for non-owner changes in net assets (often referred to as 'comprehensive income') and a required subtotal called 'net income' or 'profit or loss'.

The staff asked the Board to consider the effect of this decision on the presentation of per-share measures, namely earnings per share (EPS) and comprehensive income per share (CPS). Specifically, the Board was asked whether they would require a measure of CPS? The Board debated this issue extensively with a number of Board members expressing a desire to ultimately eliminate IAS 33 as a way of de-emphasising EPS in financial reporting. The Board agreed to retain IAS 33 as presently drafted for purposes of completing the performance reporting project. Consequently, CPS would be a measure that is permissible but not required. In answering a subsequent question posed by the staff, the Board agreed that should CPS be disclosed, this would be in the notes to the financial statements and the disclosure provisions would apply that require reconciliation of the numerator used and a line item that is reported in the income statement.

Discussed at the June 2005 IASB Meeting – Phases A and B

The Board was updated on the work of the Joint International Group on Performance Reporting (JIG). After discussing the structure of the project (the issues within Phases A and B) in the context of how to proceed, the Board tentatively decided that the staff should commence work on an exposure draft dealing with Phase A issues only. That exposure draft would consist of a detailed preamble designed to communicate clearly, the intentions of the Board on issues such as the single statement and the fact that there would be no emphasis placed on the comprehensive income amount in Phase A (as opposed to net profit). While preparing the exposure draft, the FASB would be consulted about how best to proceed and if it is decided that a discussion paper is necessary, the exposure draft would be converted into a discussion paper format.

Discussed at the October 2005 IASB Meeting – Phase A

Five issues were tabled for the Board to consider and on which the staff recommended that:

1. The term 'comprehensive income' is replaced with 'recognised income and expense'.

A lengthy debate took place over this issue and the Board eventually agreed to use the term 'total recognised income and expense' in its literature although preparers would be allowed to use any other description.

2. The titles of the four primary financial statements are:

• statement of financial position,
• statement of changes in equity,
• statement of profit and other recognised income and expense; and
• statement of cash flows.

The Board agreed with the staff recommendation provided the FASB concurs.

3. The term 'profit or loss' is used to describe the mandatory subtotal in the statement of profit and other recognised income and expense (subject to the decision on issue 1 above).

The Board agreed with the staff recommendation on the basis that this issue will be revisited and considered as part of the concepts project.

4. Accumulated other recognised income and expense is presented on the face of the statement of changes in equity, and represents items that have been initially recognised in other recognised income and expense (that is, outside profit or loss) and will be recognised in retained earnings in the future.

The Board agreed with the staff recommendation.

5. The tax effects associated with each component of other recognised income and expense is not required to be disclosed in the financial statements.

The Board agreed to follow the FASB approach which is to require disclosure of tax effects associated with each component of other comprehensive income, either on the face of the statement or in the notes to the financial statements. Joint issues (that is, IASB and FASB)

The Board was asked to consider a memorandum addressing Phase A issues that are common to both the IASB and the FASB with regard to finalising work on Phase A.

Questions asked of the IASB were as follows:

Does the IASB agree that the IASB's Amendment to IAS 1 should be effective for annual periods beginning on or after January 1, 2007, with earlier application encouraged?

The Board agreed.

Do the Boards agree that transitional provisions are not necessary for the forthcoming Statement or Amendment?

The IASB agreed. The FASB will be asked to consider this issue at the forthcoming joint meeting of the two Boards. Do the Boards agree that the comment period should be 120 days? The IASB agreed. The FASB will be asked to consider this issue at the forthcoming joint meeting of the two Boards.

Single statement or two?

The Board was informed of the resistance that seems to be prevalent amongst constituencies about the move to a single statement of profit and other recognised income and expense as opposed to a two statement approach. Board members discussed this issue with many questioning the source of the resistance as there appeared to be no conceptual arguments for a two statement approach besides 'paranoia'. Some Board members indicated that they still had a preference for a single statement and some indicated that they would allow either a single or a two statement approach, whichever route the FASB would find acceptable in order to achieve convergence. The issue was deferred to the forthcoming joint meeting of the two Boards.

Discussed at the October 2005 Joint IASB-FASB Meeting – Phase B

The staff presented a paper on the treatment of financing costs in the financial report. The Boards agreed that a financing section should be required in the performance report.

Staff recommended that the Boards develop a definition of 'financing' before developing definitions for any other category. This was partly a pragmatic recommendation, given the historical difficulties that have been encountered in developing a definition for 'operating activities'. Staff believed that financing should be defined first and that definition should be applied consistently across all entities other than financial institutions. Earlier in the project the Boards agreed to develop a model for entities other than financial institutions, and then determine subsequently how that model should be applied to or adapted for financial institutions.

The staff proposed that the first step in developing a working definition of 'financing' would be to identify the type of transactions that represent the financing activities of an entity. These generally result in the recognition of an asset or a liability in the statement of financial position. Then, a definition would be developed for those types of transactions that change the balance of identified financing assets and liabilities. Then the Boards should determine how the developed definition can be applied in the other financial statements.

The Boards noted that their starting point was that anything related to the time value of money represents a 'financing amount'. The Boards agreed that they do not want to look first at assets and liabilities; rather they want to examine the change statements and endeavour to develop a definition based on transactions in those change statements.

Two further questions were asked of the Boards: Which assets and liabilities may give rise to financing transactions, and what bases should be used to differentiate the types of transactions that should be aggregated into a financing category on the statement of earnings and comprehensive income. The Boards noted that given their responses on the method for determining a definition, any answers given to these questions represented a selection of random thoughts rather than a comprehensive response that the staff could use in their work. The staff will endeavour to develop a definition of financing based on the Boards' discussion, and will then determine what might be outside of that definition that should be within financing to determine whether a small list of exceptions may be required.

Discussion at the November 2005 IASB Meeting – Phase A

The Board was asked whether the forthcoming exposure draft on Phase A of the reporting financial performance project should require all non-owner changes in equity to be included in the financial statements but allow preparers the choice of one statement (a statement of recognised income and expenses) or two statements (an income statement and a statement of total recognised gains and losses – or similarly labelled statements).

A majority of Board members stated a preference for one statement, but said that, as political compromise, they were prepared to accept a two-statement approach as an interim step. The staff was asked to explain this in as candid a manner as possible in the exposure draft.

The Board agreed to issue the exposure draft permitting the alternative of presenting two statements.

Mr Cope and Mr Garnett signalled their intention to dissent from the ED, for the reason that they wish to require a single statement now. Mr Leisenring may dissent on the same basis, but he wants to see the proposed Basis for Conclusions first. Mr Engstrom might dissent if the Basis for Conclusions appears to prejudge the issue of moving to one statement in the near term.

Discussion at the January 2006 IASB Meeting – Phase A

The Board deliberated issues identified by the staff when drafting the pre-ballot of Proposed Amendments to IAS 1. The paper consists of issues that the Board discussed during this session.

Composition of a complete set of financial statements

Some members had concern about the controversy it could create if the IASB is going ahead of FASB on this issue (as FASB has decided to postpone this until Phase B) when the objective from the beginning of this project was convergence.

Other members respond by emphasising the importance of giving users comparative information, rather than trying to converge with the FASB.

The Board decided that the ED should propose that a complete set of general purpose financial statements should include a statement of financial position at the beginning of the period as well as one as of the end of the period.

Proposed consequential amendments to IAS 34

The Board decided not to make any amendments to the wording in IAS 34 so that it will continue to require a complete or condensed statement of financial position as at the beginning and end of the interim period.

Proposed consequential amendments to IFRS 1

The Board was asked whether they would amend IFRS 1 to require a reconciliation of total recognised income and expense, rather than profit and loss.

Comments were made that, as preparers have to consider all numbers when reconciling equity, IFRS 1 should be amended to require reconciliation of total recognised income and expense.

The Board voted in favour of the staff recommendation.

Proposed amendments to titles of standards

The Board voted in favour of:

• IAS 7 Statement of Cash Flows
• IAS 10 Events after the Reporting Date

Presentation of dividends

The Board agreed with the staff's recommendation that because dividends are distributions of equity to owners, they should not be shown on the face of the statement of recognised income and expense.

16 March 2006: Exposure Draft Issued on Phase A

On 16 March 2006, the IASB issued an Exposure Draft of proposed amendments to IAS 1 Presentation of Financial Statements. The Exposure Draft results from the first stage (Phase A) of the IASB's project on performance reporting and, if adopted, would bring IAS 1 largely into line with the equivalent US standard. The second stage of the project is being undertaken jointly with the US Financial Accounting Standards Board (FASB), and includes a reconsideration of the presentation and display of information in the financial statements. Under the proposals an entity would present all income and expenses separately from changes in its equity that arise from transactions with its owners.

Under the ED, an entity would have a choice of presenting income and expenses in a single statement or in two statements. An entity would also be required to include in its set of financial statements a statement showing its financial position (or balance sheet) at the beginning of the previous period. Comment deadline is 17 July 2006.

Click for Press Release (PDF 68k).

Discussion at the March 2006 IASB Meeting – Phase B

Project scope - Phase B

The Board affirmed and clarified (by a clear majority) the scope of their joint project with the FASB as follows:

• a. This project will address the organisation and presentation of financial information on the face of the financial statements; it will not address recognition or measurement guidance that is provided in other Statements/Standards.

• b. This project will address the necessity for totals and subtotals within the financial statements including the subtotal of net income/profit or loss. This project will assess whether to make changes to the mechanism of recycling as it is used today.

• c. This project will not include a comprehensive review of the notes to the financial statements. However, this project may result in amendments to existing disclosure requirements due to changes made to the face of the financial statements. In addition, this project may result in new disclosure requirements in areas where the project objective cannot be achieved on the face of the financial statements.

• d. This project will address all the financial statements that constitute a complete set of financial statements, not just the income statement/statement of recognised income and expense (statement of earnings and comprehensive income).

• e. This project will focus on a complete set of financial statements (most commonly annual financial statements); it will not address condensed financial information (most commonly interim financial information or reports). Reporting requirements for condensed financial information may be addressed, but that decision will be left open for now.

• f. The resulting standard will apply to all business entities (both public and non-public). However, the Boards will consider whether there should be different presentation provisions for financial institutions.

• g. The resulting standard will not apply to non-business entities such as not-for-profit organisations or defined benefit plans (therefore, it will not amend or replace FASB Statements 35 Accounting and Reporting by Defined Benefit Plans and 117 Financial Statements of Not-for-Profit Organizations).

• h. This project will not address:
  • i. Management discussion and analysis or management commentary
  • ii. Pro-forma measures (while pro-forma reporting, which is not part of IFRS/ GAAP, may diminish as the result of this project, reduction or elimination of pro-forma reporting is not an objective of this project)
  • iii. A comprehensive review of segment reporting requirements (FASB Statement No 131 Disclosures about Segments of an Enterprise and Related Information and IAS 14 Segment Reporting). However, this project may result in amendments to the segment reporting requirements due to changes made to the financial statements. (The IASB has issued ED 8 proposing amendments to IAS 14 as a separate short-term convergence project.)
  • iv. Financial ratios (except EPS and other per-share amounts)
  • v. Forecasts of information
  • vi. Non-financial ratios or other non-financial information
  • vii. Financial statements for specific industries (except for, as noted in (f) above, how the implications of decisions in this project may affect the financial statements of financial institutions).

Project objective

The Board agreed that the project's objective should be described as follows:

In this project, the Boards will address how the presentation of information in the individual financial statements (and in the financial statements as a whole) can be improved to help investors, creditors, and others fully understand an entity's financial position and changes in that position and use that information to assess the amounts, timing, and uncertainty of an entity's future cash flows.

In doing so, the Boards will address the classification and display of line items in the financial statements, including their aggregation into subtotals and totals. In addition, the Boards will address how to best present information in the financial statements so that those statements are complementary.

Project name

The Board agreed to change the working title of the project to 'Financial Statement Presentation for Business Entities'.

Working principles

The Board approved a set of 'Working Principles' designed to aid both it and the FASB in making specific decisions regarding how information should be displayed and presented in the financial statements. The following working principles are in no particular order (that is, they do not represent a hierarchy) and all have equal priority.

Principle 1

Financial statements should present information in a manner that portrays a cohesive financial picture of an entity and is comparative and consistent from one period to another.

Board members criticised the use of 'cohesive', which is not a word seen in IFRS materials. In addition, Board members expressed concern about how the staff was using 'comparable.' It was determined that, for the purposes of this project, comparable was with respect to the same entity through time; some Board members said that comparability among entities was also desirable.

Principle 2

Financial statements should present information in a manner that helps a user assess the liquidity of an entity's assets and liabilities (nearness to cash or time to maturity).

Principle 3

Financial statements should present information in a manner that separates an entity's value-creating activities from its capital activities.

This principle is likely to be redrafted to emphasise that the separation should be between transactions with owners in their capacity as owners; financing transactions not with owners; and other activities. Board members found the term 'value-creating activities' unhelpful.

Principle 4

Financial statements should present information in a manner that helps a user understand:

• a. The different methods used to measure assets and liabilities
• b. The relative precision of those measurements
• c. What caused a change in reported amounts of individual assets or liabilities (such as a transaction or a change in value or measurement method). [This was clarified as being the cost/amortised cost vs remeasurement issue.]

Principle 5

Information in the financial statements should be disaggregated and categorized into groups that respond similarly to changes in the same economic condition.

In deciding how to apply this Principle, the Boards will consider differentiation in display and presentation by nature or function; gross or net; continuing or discontinued operations; before or after income taxes; expected or known volatility; and the risks associated with the final settlement of the asset or liability.

Financial Statements

The Board agreed that the starting point for what constitutes 'a complete set of financial statements' should be as proposed in the March 2006 Exposure Draft of proposed amendments to IAS 1.

Purpose of each financial statement

The Board agreed not to define the purpose of individual financial statements.

Earnings per share

The Board agreed to defer consideration of per share amounts until after the initial document had been through the public comment process.

Conflicts with the IASB's March 2006 ED of proposed amendments to IAS 1

The Board agreed that decisions in this project should not be constrained by the amendments to IAS 1 proposed in the IASB's March 2006 ED. However, the Board agreed that it would have to be sensitive in this project to the progress of the IASB's work on the March 2006 ED, and the suggestions raised by constituents.

Discussion document

The Board agreed that the first product of the project should be a Discussion/ Preliminary Views Document. The current plan is to issue the discussion paper sometime in 1Q 2007. The staff acknowledged that this timetable was ambitious, but achievable.

The Board discussed how best to involve the Joint International Group in the run-up to issuing the discussion document. An open meeting in September was suggested. The staff will investigate this further.

Discussion at the July 2006 IASB Meeting – Phase B

The purpose of the July meeting on financial statement presentation was to discuss application of some, but not all, of the project's working principles. The goal was for the Board to reach agreement on the basic format for the financial statements (the sections and categories for each financial statement) that will be included in the initial discussion document. Issues regarding notation / labelling and recycling will be discussed at the September meeting.

The Board agreed in principle that there should be a distinction between business and financing. The Board is yet to discuss and finalise the exact terminology. The Board agreed with the following staff recommendations although some individual Board members expressed concerns about specific issues which the staff will work to resolve:

Summary of staff recommendations for how items would be presented in the financial statements

Following the table are defined terms and related application and implementation guidance.

Some Board members were concerned that the proposals appeared to provide preparers with a free choice of where in the financial statements certain items would be presented. Those members want minimum requirements to be introduced that will standardise presentation to a greater extent across preparers.

Other Board members indicated that they would like to see how derivatives are to be dealt with before subscribing to this approach.

Discussion at the September 2006 IASB Meeting – Phase B

Financing liabilities and treasury assets

The Board agreed that financing liabilities, treasury assets, and related activities shall be presented gross in the same section in the statements of financial position, comprehensive income, and cash flows.

There was much discussion about the approach being adopted, in particular what the impact of a 'through the eyes of management' approach meant in practice, in particular the extent to which management could include or exclude items from the definition of financial liabilities and treasury assets. Part of the problem was that the Board had not yet agreed the definition of these items. However, the basic approach was agreed.

The Board agreed that financing liabilities and treasury assets should be defined 'narrowly' for the purposes of presentation on the face of the financial statements.

The staff outlined that the IASB and the FASB had similar definitions of financial liabilities and treasury assets but used different methodologies to arrive at them. It would be helpful to constituents to have one approach! The IASB shifted its position in July 2006 and agreed to adopt the 'narrow' definition – one that attempts to define financing liabilities directly. The Standard would directly describe the amounts to be reported in the financing section, as opposed to giving a broad definition and describing allowable exclusions. Board members noted that this approach provides more flexibility.

Strategic investments

The Board noted that the Joint International Group on Financial Statement Presentation (JIG) had not supported a category of 'strategic investments'. The Board, also, does not like the idea. The Board agreed not to include in the Preliminary Views document the notion of a strategic investment. However, the Board agreed that the Invitation to Comment should ask a series of questions about whether 'certain financial assets' should be classified in the business activities section of the financial statements and whether those assets could be a category within that section.

Income taxes

The Board agreed that income taxes should be presented as a separate section (along with the business and financing sections) in the financial statements, thereby eliminating the need for intraperiod tax allocation and the presentation of discontinued operations and items of other comprehensive income on a net-of-tax basis.

In addition, the Board agreed that income taxes related to transactions with owners should not be recognised directly in equity. The Board noted that the income tax consequences did not represent a transaction with owners in their capacity as owners.

Discontinued operations

Definition of a 'discontinued operation'

The Board noted that IFRS 5 defines a discontinued operation, while the equivalent FASB standard does not. It was agreed that developing a common definition of discontinued operation should be part of the scope of this project.

Presentation

The Board agreed that agree that discontinued operations should continue to be presented separately in the financial statements and that information related to a discontinued operation should be displayed as a separate section in the financial statements.

Display

The Board agreed that:

• the assets and the liabilities of a discontinued operation should be presented separately and not be offset;
• the income statement effects be presented as one amount on the face of the income statement and further disaggregated either on the face of the statement or in the notes; and
• the cash flows from a discontinued operations be presented as a single amount in the statement of cash flows.

Disaggregation

Working principle

The Board agreed to revise the working principle as follows:

The staff noted that the revised working principle did not include the phrase "and present subtotals and totals where appropriate" because it is already included in the project objective. (Note that the issue of sub-totals is now not part of the working principle.)

Nature vs Function

The Board agreed that information should be presented on the statement of comprehensive income by function with supplemental information provided by nature about items important to understanding an entity's business.

Presentation on a gross or net basis

The Board agreed that assets and liabilities and income (revenues and gains) and expenses (expenses and losses) be shown on a gross basis except when:

• net presentation is required or permitted by a standard other than the financial statement presentation standard; or
• there is no incremental value in the additional information provided in a gross presentation.

Nature of guidance

The Board agreed to retain the language in IAS 1 paragraphs 83 and 84 in the financial statement presentation standard and to apply it to each of the financial statements. No 'bright line' guidance should be provided.

Working principles on comparability

The Board agreed to eliminate the working principles related to comparability as they are encompassed by the qualitative characteristics of financial reporting.

Other

Board members noted that the meeting of the JIG held on 15 September had been very good; well run and productive. They expressed their thanks to all involved – JIG members, FASB and IASB members, and staff.

Discussion at the October 2006 IASB Meeting – Phase B

The Board continued its discussions on the financial statement presentation project. The purpose of the October discussion was to get tentative views from the Board on three issues to be discussed at the joint meeting with the FASB next week:

• The financing section and investing category
• Presenting information about the short- and long-term nature of assets and liabilities
• Measurement, other comprehensive income (OCI) and recycling, and statement of comprehensive income

Financing section and investing category

Issue 1: Defining the financing section

The Board had previously agreed that the financing section in the statement of financial position should comprise equity, treasury assets, and financing liabilities.

The first issue the Board discussed was whether non-financial items should be excluded from the financing section of the financial statement. To increase consistency, all non-financial assets could be excluded from the financing section. This would still not prevent financial items from being excluded when they are not a part of financing activities. Board members noted some concerns but tentatively agreed with the proposal.

The second part of this issue was related to a proposed definition of the financing section and proposed application guidance to be included in the Standard. The Board seemed to agree with the proposed definition, under which the financing section should include only financial items that management views as part of the financing of the entities business activities. However, the Board stated concern about the list of proposed items to be excluded and included, and noted that it could not issue such a list with out a thorough discussion of the items included.

Issue 2: Defining the investing category in the business section

The Board discussed the following proposed definition of the investing category of the statement of financial position which was based on the Board's request from the September meeting.

"The investing category should include only financial assets and liabilities (as defined in the literature) not classified in the financing section that management views as incidental to the entity's main business activities (referred to as investing assets and liabilities). Items typically included in the investing category are

• a. Available-for-sale financial instruments
• b. Equity method investments
• c. Financial instruments held to hedge (a) or (b) above."

As for the financing category, an entity would be required to explain any items listed in the definition above that is not included in the investing category.

Board members asked for clarification as to why certain items like investment property would be excluded from the investing category. No decisions were made to this section.

Issue 3: Presentation of pension assets and liabilities

At the staff's request, the Board did not discuss this issue.

Presenting information about the short- and long-term nature of assets and liabilities

Issue 1: Short-term classification for assets and liabilities

The Board discussed whether assets and liabilities should be classified as short-term based on the operating cycle of the business or based on when the expected realization or settlement of the asset is within one year. It then discussed whether an entity should be required to present operating assets and liabilities in short- and long-term categories on the face of the income statement.

Board members were divided on whether classification of short-term assets and liabilities should depend on the operating cycle or a one year settlement/realisation criterion. They expressed agreement to splitting short- and long-term items on the face of the income statement if it provides useful information.

Issue 2: Information about liquidity

The Board had previously decided that information about the liquidity of an entity's assets and liabilities should be presented in the notes to the financial statement to help users assess the liquidity of an entity. At the October meeting the Board discussed the following three alternatives:

• a. Information about short and long-term assets and liabilities would be presented by line item in order of liquidity. (for example, short-term assets as inventory presented separately).
• b. Information about short- and long-term asset and liabilities would be presented by category. (for example, short-term assets as financing assets presented separately).
• c. Information about short- and long-term asset and liabilities would be presented by line item for all but the operating category (similar to the requirement in alternative 'a' except for operating assets and liabilities, which are disclosed in the aggregate).

The Board did not choose one of these alternatives. However, it concluded that the most important issue is to understand how much information is needed rather than to focus on whether this information is stated on the face of the income statement or disclosed in the notes.

The Board did not discuss the third issue in the paper regarding deferred taxes.

Measurement, OCI and recycling, the statement of comprehensive income

Issue 1: Information regarding measurement of assets and liabilities

The Board discussed and indicated agreement that the financial statement presentation standard should include the general guidance in IAS 1 that requires disclosure of measurement basis used in preparing the financial statements in the summary of significant accounting policies. It also agreed that, if items included within a certain line item in the statement of financial position are measured on more than one measurement basis, an entity should be required to disclose the measurement bases used and the amount included in that line item based on each measurement basis.

The Board then expressed agreement that disclosure of information about the significant uncertainty in the current measure of assets and liabilities and how the measured amount was selected, within the context of the particular measurement attribute used should be prescribed in individual standards when the Board deems it appropriate.

The Board also discussed whether the financial statements should provide information that would allow a user to distinguish between changes in assets and liabilities that are due to remeasurements and changes that are not. It also discussed how remeasurements should be defined. No indications were made on this issue but the Board asked the staff to explore this further.

Issue 2: OCI and the mechanism of recycling

The Board discussed whether other comprehensive income (OCI) should be a separate section in each of the financial statements or whether OCI items should be classified in the appropriate categories that are based on functional activities of an entity (that is not to add the OCI section to the working format). The Board members expressed split views on how to move forward on this.

Discussion at the December 2006 IASB Meeting - Phase A

The staff presented an analysis of comment letters received on the Exposure Draft of Proposed Amendments to IAS 1 Presentation of Financial Statements (A Revised Presentation) (ED IAS 1). The following decisions were made and the staff was directed to amend ED IAS 1 accordingly.

Titles of a complete set of financial statements

Paragraph 81 of ED IAS 1 states that:

"An entity shall present all components of income and expense recognised in a period: (a) in a single statement of recognised income and expense; or
(b) in two statements: a statement displaying components of profit or loss and a second statement beginning with profit or loss and displaying components of other recognised income and expense."

The Board confirmed to maintain the two-statement approach and the single-statement approach as alternatives. After having discussed several alternatives the Board decided that in case of the single statement approach the statement should be titled 'Statement of comprehensive income'.

In case of a two statement approach the statements should be titled 'Income Statement' and 'Statement of recognised income and expenses'. This is the same terminology used in the existing IAS 1. The Board pointed out that it intends to await the outcome of phase B of the project before changing the titles.

The Board decided to keep the names in ED IAS 1 proposed for 'statement of financial position' (previously balance sheet), 'statement of changes in equity' and 'statement of cash flows'. In response to concerns expressed in various comment letters the Board agreed to explicitly define the term "financial position" in the framework.

Further the Board agreed to the staff recommendation to keep the changes in nomenclature non-mandatory in ED IAS 1.

Statements of financial position at the beginning of the period

ED IAS 1 proposes that a complete set of financial statements should include a statement of financial position as at the beginning of the period. Therefore, an entity presenting comparative information should be required to present three statements of financial position in its financial statements.

The Board decided that the third statement of financial position should only be required when the statement of financial position as at the beginning of the period had been subject to reclassifications and/or restatements. Segregation of owner and non-owner changes in equity

The ED proposes that 'non-owner changes in equity' (components of recognised income and expense) be referred to as 'recognised income and expense' (bearing in mind that an entity is not required to use this term in its financial statements).

Some respondents noted an inconsistent use of the terms 'equity holder' and 'owners' within ED IAS 1. The Board agreed that the definition of these terms is outside the scope of this project but decided to clarify in the introductory paragraphs of ED IAS 1 that the statement of changes in equity should apply to transactions with equity holders acting in their capacity as equity holders and to refer to these equity holders as owners within ED IAS 1.

Other recognised income and expense

Reclassification adjustments

ED IAS 1 requires the disclosure of the reclassification adjustments relating to each component of other recognised income and expense.

The Board confirmed the current guidance in ED IAS 1 on reclassifications. To make it consistent with paragraph 93 and the wording in FAS 130, the Board decided to define reclassifications as follows: 'Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognised in other recognised income and expense in current or previous periods'.

Related tax effects

The Board confirmed the provisions in paragraphs 90 and 91 of ED IAS 1.

Presentation of per-share measures

Some respondents interpreted the current requirements of paragraph 73 of IAS 33 Earnings per Share to allow presentation of alternative per share measures on the face of the income statement.

The Board confirmed that ED IAS 1 does not propose changes to IAS 33. Therefore, earnings per share will be the only per-share measure presented on the face of the statement of recognised income and expense. If an entity presents any other per share measure, that information is required to be calculated in accordance with IAS 33 and presented in the notes. The Board indicated that an amendment of paragraph 73 of IAS 33 might be necessary to clarify this.

Definition of general purpose financial statements

Paragraph 7 of ED IAS 8 states:

"General purpose financial statements include those that are presented separately or within other public documents such as a regulatory filing or report to shareholders".

A large number of respondents alleged that the reference to 'regulatory filing' could be interpreted as defining all financial statements filed with any regulator to be general purpose financial statements. This may lead to controversy considering that a great number of registrants, public or not, report to various types of regulatory authorities (e.g. in Australia small private companies and subsidiaries of public companies with no external users of financial reports, will be required to prepare general purpose financial reports because they are required to place their financial statements as a public file).

The Board noted that this was not the intention and decided to clarify this by amending paragraph 7 of ED IAS 1.

Discussion at the December 2006 IASB Meeting – Phase B

Other comprehensive income

The staff identified alternative formats for presenting other comprehensive income (OCI) that could serve until the IASB and FASB can achieve their long-term goal of eliminating the separate presentation of some OCI items.

The staff developed the following alternatives for presenting OCI items on the statement of comprehensive income (the alternatives are illustrated in the observer notes):

• Alternative A Present OCI items within the functional section or category to which the events or transactions relate and recycle (if necessary) within the section or category.

• Alternative B Presentation is the same as Alternative A, except that each category or section that has an associated OCI item would have a subcategory to distinguish OCI items from non-OCI items.

• Alternative C Present OCI items in a separate section (that would be presented with equal prominence as the business, financing, income tax, and discontinued operations sections). OCI items that are recycled would be recycled among sections and categories. The OCI section would include operating, investing, and financing categories. The OCI section would have a subtotal like the other sections.

• Alternative D. Presentation is the same as Alternative C, except that OCI items would be presented on a net of tax basis. This presentation is the most consistent with the current presentation of OCI items and the sum of the business, financing, discontinued operations, and income taxes sections would equal net income, as currently presented.

The Board discussed the alternatives and was nearly equally divided between the positions 'A or B' on the one hand and 'C or D' on the other side. Those who supported 'A or B' noted that this presentation would be closer to the long-term goal of eliminating the separate presentation of OCI items.

A Board member presented an additional alternative with no label OCI but with income and expense items classified as long-term and short-term similarly to the current/non-current classification in the balance sheet (statement of financial position). This concept could be presented using the formats of Alternatives B or C.

The staff noted that a majority of the FASB agreed with Alternative B with minority votes for A and C.

No decisions were made.

The statement of cash flows

Proposed working principles

The staff recommended that the objectives of the statement of cash flows in FAS 95 Statement of Cash Flows be adopted in this project as working principles, modified in part, as follows. Information should be presented in the financial statements in a manner that will help investors, creditors, and others to assess:

• (a) an entity's ability to generate future cash inflows;
• (b) an entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing;
• (c) the differences between cash transactions and accrual accounting; and
• (d) the effects of non-cash activities during the period on an entity's financial position.

The Board agreed to these principles but said that it should be made clear that the objectives can only be achieved by financial statements as a whole not by cash flow statements alone.

Direct method versus indirect method

At the April 2004 joint Board meeting, IASB and FASB decided that the financial statement presentation project should address whether the statement of cash flows should be required or permitted to be prepared under the direct method or the indirect method.

The current guidance in FAS 95 formed the basis of the discussion. FAS 95 describes the direct method as a method which reports 'major classes of gross cash receipts and gross cash payments and their arithmetic sum' (paragraph 27) and the indirect method as a method which determines and reports 'net cash flow from operating activities indirectly by adjusting net income to reconcile it to net cash flow from operating activities' (paragraph 28).

Many Board members felt that the direct method provides more useful information. However, some raised the concern that the direct method might be too complex and that the cost might outweigh the benefits.

The Board decided that the direct method as outlined in an Agenda Paper (not provided to observers) should be applied.

Reconciliation from operating income to cash flows from operating income

Currently, FAS 95 requires a reconciliation of net income to cash flows from operating activities if the direct method is used. That reconciliation is not required by IAS 7 Cash Flow Statements.

The Board agreed that the information needed to reconcile (comprehensive) operating income to cash flows from operating activities should be required to be presented in the financial statements.

The staff was asked to explore whether similar information should be provided for the investing, financing and other categories.

Non-cash activities

The Board agreed that all relevant information about significant non-cash activities should be provided. The issue was not discussed in detail.

Application of the working format of cash flow statements to financial institutions

At the outset of the convergence project on financial statement presentation, the IASB and FASB agreed that issues related to financial statement presentation should be addressed first for non-financial institutions and second for financial institutions. While that is the approach that has been taken, the staff's underlying goal was to develop, if possible, principles for presentation that would apply to all entities.

The staff presented a paper based on meetings with the Financial Institutions Advisory Group (FIAG).

The Board agreed to the staff's recommendations on the following issues (without discussing them in detail):

• An eyes-of-management approach should be used to classify information in the financial statements. The Board noted that this is the same approach as for non-financial institutions.
• The criteria for classifying items in the financing, investing and operating section should similarly apply to financial institutions
• Cash and cash equivalents are required to be classified in a single category.

Discussion at the January 2007 IASB Meeting – Phase B

The FASB staff joined the meeting by video link for this session.

Definition of Discontinued Operations

The Board was asked which of the following criteria should be included in the definition of Discontinued Operations:

• Separate major line of business
• Operating Segment
• Continuing involvement
• Capital appreciation

The Board discussion concentrated on the first two criteria. At the beginning of the discussion it appeared that a majority of Board members supported a level 'one level below Operating Segments'. Those in favour of this noted that an Operating Segment criterion would exclude significant business line within a segment from being presented as Discontinued Operations.

The FASB staff in formed the Board that the FASB had agreed on the Operating Segment criterion. The FASB considered it to be sufficient to only show and restate Operating Segments since disclosures for all other components are to be provided in the notes.

One Board member pointed out that because of the restatement issue there should be no GAAP difference.

Finally Board members voted 8 to 6 in favour of the Operating Segments criterion. No final decision was made on the scope of disclosures for the other components classified as held for sale.

It appeared from the discussion that the last two criteria should not be considered. However, no vote was taken on this.

FASB staff informed the Board that the FASB intends to revise FAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets. The Board acknowledged that it might be necessary to launch a similar project for IFRS 5. However, it was decided to await the outcome of the FASB project first.

Disaggregation on the Statement of Comprehensive Income

The staff presented the following alternatives:

Alternative A: Pure Management Approach

Under Alternative A, an entity would be required to present the following:

• Information based on the primary activities (functions) in which the entity engages
• For each of those functions, information about the significant related costs (by their nature) that would provide information useful in predicting future cash flows.

The standard would include examples of functional activities and related costs that an entity might present separately. Those examples would include:

a. Functional activities:

• 1. Sales of product
• 2. Sales of services
• 3. Cost of product sales
• 4. Cost of services sales
• 5. Marketing
• 6. General and administrative
• 7. Research and development

• 1. Salaries and wages
• 2. Pension and other benefits
• 3. Materials
• 4. Depreciation
• 5. Amortization
• 6. Rent
• 7. Energy
• 8. Lease
• 9. Maintenance
• 10. Technology
• 11. Royalty fees
• 12. Licensing fees.

Alternative B: Modified Management Approach

Alternative B would be the same as Alternative A except that the first seven costs listed in Alternative A under related costs by their nature would be required to be presented separately unless the cost is deemed to be insignificant. As with Alternative A, an entity also would be required to break out any other cost that is important in understanding its operating results that may not be or relate to a functional line item because it does not relate to what the entity does on a regular basis (not a primary activity). Examples would be a gain or loss on the disposal of an asset or impairment of goodwill.

Alternative C: Permit Nature Only (as exception to Modified Management Approach)

Alternative C would add an exception to Alternative B that would permit an entity to present information only based on the nature of expenses (materials, labour, depreciation, and so forth) if classifying costs (expenses) into functional activities provides information that is not relevant.

No formal decision was made. The majority of Board members supported Alternative A for disaggregation by function and were in favour of having Alternative C in certain situations (e.g. holding companies).

Hybrid Entity considerations

Some Board members noted that issues associated with applying the working format to the financial statements of hybrid entities are of high importance. Hybrid entities were considered to be the 'rule rather than the exception' (e.g. manufacturers providing significant finance services).

The Board decided to further explore this issue prior to the issuance of the initial discussion document and asked the staff to prepare a paper for discussion at the March meeting.

Statement of changes in equity and other equity-related issues

The Board discussed the following five issues.

1. Whether the statement of comprehensive income should be expanded to include all changes in net assets including investments by and distributions to owners

The Board decided not to expand the statement of comprehensive income to become a statement of changes in net assets. The statement of changes in equity should be viewed together with the statement of comprehensive income, thereby making the set of financial statements cohesive and complete.

2. What format the statement of changes in equity should take

The staff provided a schedule including details of the change in the beginning and ending balance of each of the following components of equity:

• Common Stock
• Warrants
• Retained Earnings
• Accumulated OCI

The Board agreed to the format but pointed out that within the caption Common Stock an entity should be allowed to show the par value and the additional paid-in capital separately.

3. Whether the working format should be modified such that the equity category would be presented as a separate section distinct from the financing section

The Board agreed to have a separate equity section.

An illustrative example is provided on page 11 of Agenda Paper 13D of the Observer notes available from the IASB website.

4. Whether the Board should be pursuing another statement that would provide information about how capital is allocated

The Board decided not to have this additional statement on grounds that the information can be extracted from the existing statements.

5. Whether Board members are interested in pursuing a schedule that would present equity items (and possibly financing liabilities) at fair value

The Board decided not to have this additional statement as outlined in the Observer Notes.

In this connection the Board discussed and approved a suggestion submitted by one Board member dealing with the presentation of equity components at fair value. However, no details were made available to observers.

Discussion at the February 2007 IASB Meeting – Phase B

The Board discussed a principle for presenting liquidity information that would apply to both financial institutions (FIs) and non-financial institutions (non-FIs).

Issue 1: The liquidity working principle

The staff asserted that the liquidity working principle should encompass both short-term and long-term liquidity and proposed the following revised wording of the liquidity working principle:

'Financial statements should present information in a manner that helps a user assess an entity's solvency (the ability to pay debt and other borrowings from external sources as they come due) by providing information about the liquidity of the entity's assets and liabilities (nearness to cash, the means to assessing solvency or time to conversion to cash).'

The Board directed the staff to further elaborate the interdependencies between liquidity and solvency for discussion at a future meeting.

Issue 2: Application of the liquidity working principle

The proposed concept requires an entity to provide the following information in the financial statements (further details are available in Observer Note 9, available on the IASB Website):

• Qualitative information regarding liquidity management activities (liquidity management policy and processes).
• Details of maturities of its long-term assets and liabilities with contractual maturities.
• Maturities of its short-term assets and liabilities as described below:

If an entity manages its needs for cash based on a horizon shorter than one year, the detailed maturities of assets and liabilities with contractual maturities should be provided for more than one time band.

If an entity does not manage its needs for cash based on a horizon shorter than one year, the maturity information may be provided either on the face of the statement of financial position or in the notes. However, if it presents the information on the statement of financial position, all of its assets and liabilities should be classified as either short- or long-term.

No decisions were made but the staff was asked to prepare a detailed comparison of the concept to existing guidance in IFRSs, particularly in IFRS 7.

Discussion at the March 2007 IASB Meeting – Phase B

Presentation of changes in assets and liabilities

The Board held a discussion that focused on what information should be presented in the financial statements. The issue of how that information should be presented was left to a subsequent meeting.

Clarification of working principles

The Cohesiveness Working Principle

The Board agreed that the Cohesiveness Working Principle should be applied at the line item level. However, several Board members noted that this Principle should not result in 'reconciling individual accounts', but to keep cohesiveness across statements. By agreeing this Principle, the Board was not advocating masses of information on the face of the financial statements; some of the information would be in the footnotes.

Disaggregation working principle

By a majority, the Board agreed that information related to changes in assets and liabilities should be disaggregated based on whether the information is assigned the same valuation multiple for the same reason. (I.e. Different types of income and expense will have a different multiple assigned to them by analysts related to persistence, estimation error, etc. This Working Principle implies that items of income and expense would be disaggregated on this basis.) The staff agreed that the explanation of this Working Principle needed a bit of work.

Reconciliation of statements of financial position [balance sheets]

Presenting a reconciliation of statements of financial position

The Board agreed that an entity should present a reconciliation of statements of financial position for each period for which financial statements are presented. This reconciliation would be in the footnotes. Board members noted that there are already many reconciliations required for balance sheet items. Some Board members wanted to ensure that any additional reconciliations were justified.

Cash transactions

The Board did not agree a staff recommendation that would have disaggregated cash transactions during the period into various components. Board members thought that the staff's approach would be burdensome on preparers and that there were surrogates, such as 'number of day's sales in accounts receivable', that were easier to prepare and just as useful.

The staff will return to this issue later.

Direct cash transactions and the classification of cash

The Board did not accept a staff recommendation that would require direct cash transactions (cash sales) to be accounted for as two transactions (an account receivable [an asset] followed by an immediate settlement for cash [a financing item]). The Board thought that the staff's approach was unnecessary. If the level of cash sales was important, the cash flow statement should show this.

Disaggregation of remeasurements

The Board agreed that only recurring fair value changes (as those arise as a result of applying FAS 157 Fair Value Measurements should be discerned from other remeasurements. This means that changes in fair values would not be aggregated with changes in carrying amount based on fair value-like measures.

Other comprehensive income items

The Board agreed that there was no need to display the remeasurement of items of other comprehensive income separately from remeasurements of other items. In other words, items displaying the same characteristics would be displayed in the same way, even if they were components of other comprehensive income.

Exemptions to remeasurements

The Board agreed that, for the purposes of the reconciliation, there should be no exceptions to what is presented in the remeasurement component.

Disaggregation of non-cash non-remeasurements that are recognised in income or expense for the current period.

The Board agreed that the initial recognition of an estimate (for example, the initial recognition of a non-financial liability) should be presented separately from other components within non-remeasurements that are recognised in income and expense for the year. The Board agreed that systematic allocation of costs (e.g. depreciation) and other timing differences between the period in which income is recognised and the period in which the cash flow occurs (for example, accrued expenses, deferred income), could be aggregated and need not be presented separately.

The staff will bring to a subsequent meeting examples to illustrate this issue. Some Board members were concerned that the staff were attempting to identify a distinction without a difference.

Non-cash changes in assets and liabilities that are not recognised in income or expense for the current period The Board agreed that changes in assets and liabilities that affect neither income nor expense nor accompany cash should be presented separately.

Statement of Comprehensive Income

A disaggregated statement of comprehensive income

The Board agreed that the reconciliation of statements of financial position [balance sheets] should include information that indicates how the changes in assets and liabilities relate to line items presented in the statement of comprehensive income and the statement of cash flows.

Although the Board agreed the staff recommendation, it was evident that not all Board members understood what the issue was attempting to communicate. The staff suggested that the suggested format of the statement would help to clarify what the staff is attempting to articulate.

Statement of Cash Flows

The Direct Method and the cohesiveness principle

A minority of the Board (six members) supported a mandatory requirement to present the cash flow statement using the direct method, that is, based on the actual cash receipts and payments, disaggregated in a manner that parallels the line items that are presented in the statement of comprehensive income as far as possible.

Reconciliation

As a result of the previous decision, it was evident that a majority of the Board thought that they should require a reconciliation between items in the statement of comprehensive income and the statement of cash flows.

The FASB staff present at the meeting notified the Board that the FASB had discussed the statement of cash flows on 21 March 2007 and had indicated a leaning of being unanimously in favour of mandating the direct method.

Other comprehensive income presentation

Presentation of other comprehensive income items in the statement of comprehensive income

The Board discussed various alternative presentations for the statement of comprehensive income (see Observer Note 9B). The staff was seeking guidance on which presentations it should include in the forthcoming Discussion Paper. The discussion centred on a presentation, designated as 'E-prime' (E1) and other formats in the Observer Note. It was not immediately obvious whether E1 was that reproduced in the Observer Note. E1 was distinguished from other possible presentations in that it presented items of comprehensive income within the business, investing and financing categories on the basis of whether the underlying assets and liabilities were short-term or long-term in nature. Thus, pension expense would be included within Business-operating, long-term; realised gains on available for sale financial instruments in Business-investing, short-term; and interest on long-term debt within Financing Expenses, long-term. The other innovation in this format was that income tax expense was also split between short- and long-term, something that violates a previously-agreed position that income tax expense should not be allocated.

After a lengthy debate, it was agreed that the Discussion Paper would include alternative statement presentations that included a category of 'other comprehensive income' and did not include the category; and examples that provided for the recycling of items of other comprehensive income and not.

Classification of other comprehensive income items in the working format

Classification of foreign currency translation adjustments

The Board agreed that foreign currency translation adjustments should be included in the statement of comprehensive income based on the nature of the underlying assets and liabilities (for example, in investing if the subsidiary is a 'treasury' activity; in business if it is a trading activity, etc). There was little enthusiasm for requiring a more detailed allocation of foreign currency amounts.

Classification of other comprehensive income items other than foreign currency adjustments

The Board agreed that there should be no additional classification guidance for items of other comprehensive income other than foreign currency adjustments.

Plan for achieving the Board's long-term goal

The Board had a brief discussion of this topic but did not make any decisions, thinking such decisions to be premature.

Initial Discussion Document [Discussion Paper]

The Board had a brief discussion about whether the discussion paper should include the Board's Preliminary Views. Although no definitive decision was taken, at least one Board member was fundamentally opposed to including Preliminary Views and would prefer the document to be silent in this respect.

Cash Equivalents

Whether the notion of 'cash equivalents' should be retained in the financial statements After a short debate, the Board voted (by majority) to eliminate the concept of cash equivalents. The statement of cash flows would present flows related to cash alone; items currently classified as cash equivalents would be classified in the same manner as other short-term investments.

Discussion at the May 2007 IASB Meeting – Phase B

The Board discussed issues to be discussed in the forthcoming joint IASB/FASB Discussion Paper Preliminary Views on Financial Statement Presentation.

Presentation of liquidity information

Revisions to the Working Principle

At previous meetings, the Board agreed that:

• entities that are not financial institutions should be required to classify the assets and liabilities in each of the categories on the statement of financial position into short- and long-term subcategories. An asset or liability would be classified as short-term if the shorter of (a) the contractual maturity or (b) the expected realisation or settlement of the asset or liability is within one year. Otherwise, the asset or liability would be classified as long-term; and
• financial institutions should not be required to present short- and long-term subcategories for each category on the statement of financial position. The Board asked the staff to develop a principle for presenting liquidity information that would apply to all entities.

The Board first discussed a revision to the Liquidity Working Principle. Board members noted that solvency and liquidity are related but not the same. Solvency refers to an entity's ability to meet its financial commitments as they come due. Solvency is both long- and short-term. The short-term bit is a function of liquidity; the long-term is a function of the entity's ability to withstand financial shocks and surprises.

After a lengthy debate, the Board agreed to amend its Liquidity Working Principle along the lines of (staff and Board members agreed to discuss detailed drafting outside the meeting):

Financial statements should present information in a manner that helps a user assess an entity's ability to meet its financial commitments as they come due and to invest in business opportunities.

Application of the Working Principle

(a) Quantitative disclosures

The Board confirmed their view that the Preliminary Views would suggest that:

• Entities that present a classified statement of financial position (balance sheet) would present short- and long-term subcategories for operating, investing, and financing activities. An asset or liability would be classified as short-term if the shorter of (a) the contractual maturity or (b) the expected realisation or settlement of the asset or liability is within one year.
• Entities that present their statement of financial position based on liquidity because it provides information that is reliable and more relevant should present a detailed maturity schedule for short-term contractual assets and liabilities.
• All entities should present a maturity schedule for long-term contractual assets and liabilities (much of this information is already disclosed, such as for leases, pensions, and long-term debt.)
• The Board thought that using the approach to determining the classified/unclassified presentation that is in IAS 1.51 currently was better than trying to define a 'financial institution'. The staff will present this suggestion to the FASB at a later date.

(b) Qualitative disclosures

After a short and curtailed debate, the Board decided that it would not include a discussion or preliminary view on qualitative disclosures about capital adequacy and financial flexibility in the Discussion Paper. Rather, it would leave the existing disclosures required by IAS 1 paragraphs 124A-C and IFRS 7.33 alone for the time being.

Classification in consolidated financial statements by entities with significantly different businesses

The Boards' proposed working format for the primary financial statements disaggregates financial information between value creating ('business') activities, and the funding of that value creation ('financing activities' and 'equity'). The Boards' preliminary view is that an entity should classify its assets and liabilities as business or financing based on how it manages its activities or functions. In January 2007, the Boards decided to include their preliminary view on how a consolidated reporting entity consisting of significantly different businesses should apply the classification guidance. 'Entities consisting of significantly different businesses' are those entities that classify assets and liabilities of the same nature (for example, receivables) in different places (that is, in operating and financing).

In particular, the Board discussed how a consolidated reporting entity that is comprised of significantly different businesses should:

• Apply the classification criteria to separate its value creating assets and liabilities from financing assets and liabilities.
• Present the financial information for those different businesses in its consolidated financial statements.

The Board discussed three alternatives that would enable an entity presenting consolidated financial statements to report the activities of significantly different businesses (for instance, manufacturing activities for motor vehicles or airplanes and financing/leasing activities). There was clearly some degree of confusion about what the three alternatives would report and how they differ. Part of the confusion was because the Board was using terminology from IFRS 8 Operating Segments but not in the manner in which IFRS 8 uses it; part was a lack of clarity over the objective of the alternatives.

The Board asked the staff to do further work, but did suggest that:

• The classification ('tagging' in XBRL) of assets and liabilities should be done at the segment level according to the nature (operating or financing) of those assets and liabilities in that segment. How the assets and liabilities are aggregated for consolidated financial statement purposes is a separate issue.
• The Discussion Paper should propose that information about assets and liabilities in consolidated financial statements reporting the activities of significantly different businesses additional to that required by IFRS 8 be required; and that such information be required for operating and financing activities.
• If different segments classify assets and liabilities in the same way, those segments could be aggregated in the balance sheet.
• An illustration of the staff proposals compared with what is required now might help the Boards understand the effect of the staff proposals.

Discussion at the June 2007 IASB Meeting – Phase B

The FASB staff joined the meeting by video link for this session.

Basket Transactions and Foreign Currency Translation

At their respective July 2006 Board meetings, the Boards agreed that the cohesiveness principle should be the governing principle in the financial statement presentation project. Under the cohesiveness principle, assets and liabilities are classified into a functional category (operating, investing, financing, and the like). The income and expense (including gains and losses) associated with those assets and liabilities are presented in the corresponding category in the statement of comprehensive income, and the cash flows associated with those assets and liabilities are presented in the corresponding category in the statement of cash flows.

However, it is not uncommon that a single transaction involves multiple assets (or a combination of assets and liabilities) that would be classified in more than one category under the proposed presentation format. These are referred to as 'basket transactions'.

The staff presented a memorandum discussing how basket transactions should be classified in the Statement of Cash Flows and in the Statement of Comprehensive Income.

Classification in the Statement of Cash Flows

Alternative A:

Require an entity to allocate cash flows related to all basket transactions to existing categories. This option was further split into:

• A-1 Allocate cash flows based on the relative carrying values of the assets and liabilities
• A-2 Allocate the cash flow to one category based on the function that is likely to be the predominant source of that cash flow
• A-3 Do not prescribe how to allocate cash flows to categories

Alternative B:

Require an entity to present cash flows related to all basket transactions in a new 'Acquisitions and Disposals' section.

Alternative C:

Require an entity to allocate cash flows related to certain basket transactions to existing categories and to present cash flows related to other basket transactions in a new 'Acquisitions and Disposals' section. Classification in the Statement of Comprehensive Income The memorandum discussed whether the income and expenses (including gains and losses) related to a basket transaction should be allocated to each category the assets or combination of assets and liabilities are classified in.

These issues were discussed at a FASB education session recently and a number of concerns were raised. The Board agreed with these concerns, which included:

• The grossing up of cash flows under Alternative A-1;
• An allocation based on relative fair values was not considered; and
• The allocation of cash flows was considered prior to the allocation of gains and losses rather than vice versa.

No decision was reached by the Board and it was agreed that the staff would rework the paper for future discussion based on the concerns raised at this meeting.

Presenting Information about the Cause of Change in Reported Amounts of Assets and Liabilities

The Board continued the discussion on applying the working principle that states: 'Financial statements should present information in a manner that helps a user understand what caused a change in reported amounts of individual assets and liabilities.'

Basis on which to disaggregate amounts recognised as income or expense

The disaggregation working principle states that line items should be disaggregated 'if that disaggregation enhances the usefulness of that information in predicting future cash flows'. The Boards' preliminary view in March was that amounts recognised as income or expense should be disaggregated based on the characteristics of persistence and measurement subjectivity. Persistence was defined as 'recurring and having predictive value'.

In their memo the staff concluded that it would be difficult to define and operate a disaggregation scheme that relies on the notion of 'measurement subjectivity'. Furthermore, it is nearly impossible to develop an operational definition of 'recurring'. The staff therefore recommended that disaggregation based on the predictive value of an amount recognised in income or expense would disaggregate information in a manner that enhances the usefulness of that information in predicting future cash flows.

The staff also proposed that both predictive and not predictive amounts recognised as income or expense be further disaggregated into (a) fair value adjustments and (b) all other changes, on the basis that disaggregation of amounts recognised as income or expense in this manner will help a user understand the cause of a change in reported amounts of assets and liabilities.

The Board discussed the issues and reached the following conclusions with regard to producing an initial discussion paper:

• The Board did not agree with disaggregating changes in assets and liabilities recognised as income and expense based on predictive value, as the concept of predictive value was not clear. In particular, the Board was unsure whether predictive value related to future cash flows or the future line item amount recognised (or both).
• The definition of 'fair value adjustments' needed to be clarified, such that it referred to all valuation adjustments.
• The staff should consider whether disaggregation based on (a) valuation adjustments and (b) other than valuation adjustments, would provide incremental information to the users given that, under the proposed presentation format, distinction between line items according to measurement basis is already required.
• If such a disaggregation scheme does provide incremental information, the Board believed that a 'through the eyes of management' accounting policy exclusion should be available. This would allow management the option of not disaggregating certain valuation adjustments that they considered integral to ordinary business activities (for example, inventory obsolescence, doubtful debt allowances), which could be retained in (b) other.

Methods of presenting information about changes in assets and liabilities

The board discussed the following three alternatives for presenting information about what caused a change in the reported amounts of assets and liabilities:

• Alternative A: Statement of Financial Position Reconciliation
• Alternative B: Statement of Comprehensive Income Matrix
• Alternative C: Reconciliation of the Statement of Cash Flows and Comprehensive Income

These formats were discussed in terms of three of the project's working principles related to this issue – that financial statements should present information in a manner that:

• Portrays a cohesive financial picture of an entity
• Helps a user understand what causes a change in reported amounts of individual assets and liabilities
• Helps a user assess the differences between cash transactions and accrual accounting.

Incorporating FCTA and Acquisitions and Disposals in a Statement of Financial Position Reconciliation

The board did not discuss this issue since the Statement of Financial Position Reconciliation (Alternative A above) was not the preferred method.

September 2007: Revised IAS 1 Is Issued

On 6 September 2007, the IASB issued a revised IAS 1 Presentation of Financial Statements. The main changes from the previous version are to require that an entity must:

• Present all non-owner changes in equity (that is, 'comprehensive income' – see box below) either in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). Components of comprehensive income may not be presented in the statement of changes in equity.
• Present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement.
• Disclose income tax relating to each component of other comprehensive income.
• Disclose reclassification adjustments relating to components of other comprehensive income.

IAS 1 changes the titles of financial statements as they will be used in IFRSs:

• 'balance sheet' will become 'statement of financial position'
• 'income statement' will become 'statement of comprehensive income'
• 'cash flow statement' will become 'statement of cash flows').

The publication of IAS 1 Revised marks the completion of the first phase of the IASB's joint initiative with the US Financial Accounting Standards Board (FASB) to review and harmonise the presentation of financial statements. The second phase, which has already begun, is examining more fundamental questions about the presentation of information in financial statements and the IASB expects to publish a discussion paper on the subject within the next six months.

Discussion at the October 2007 IASB Meeting – Phase B

(The FASB staff joined the meeting by video link for this session.)

The Board continued its deliberations on various issues to be addressed in the initial discussion document of this project.

Classified statement of financial position

The Board reaffirmed by majority vote its tentative decision that an entity would not be required to present a classified statement of financial position when a presentation of assets and liabilities in order of liquidity provides information that is reliable and is more relevant. The Board noted that this decision will require judgement and that the initial discussion document should include examples to illustrate circumstances in which a statement of financial position presented in order of liquidity may be more relevant.

Capital management disclosures

The Board discussed the capital management disclosures currently required in paragraphs 134 to 136 of IAS 1 (revised 2007) Presentation of Financial Statements.

The staff pointed out that the term 'capital' may include operating items and suggest to change paragraph 135(a)(i) of IAS 1 to something like "A description of what is managed as capital (including as appropriate, operating, financing and equity items)". Some Board members stated that in current IFRSs, the term 'capital' relates to long-term financing and equity items and that the disclosures under paragraphs 134 to 136 of IAS 1 should focus on such items.

The Board decided not to amend the existing guidance in this respect.

Netting in the statement of cash flows

At the March 2007 meeting, the Board tentatively decided to eliminate the concept of cash equivalents. Accordingly, the statement of cash flows would present flows related to cash alone; items currently classified as cash equivalents would be classified in the same manner as other short-term investments.

At this meeting, the Board discussed whether net or gross amounts of cash receipts and payments related to items currently classified as cash equivalents should be presented on the statement of cash flows.

At previous meetings the IASB and the FASB had tentatively agreed a 'netting principle' stating that entities should prepare financial statements using a gross presentation except when (a) net presentation is required or permitted by the authoritative accounting literature or (b) there is no incremental value in the additional information provided in a gross presentation – that is – the net amount provides all of the information that is necessary.

The Board tentatively decided to eliminate the existing general netting guidance in paragraph 22 of IAS 7 Cash Flow Statements, as this would be covered by the general netting principle. The current specific netting guidance in paragraph 24 of IAS 7 should be retained to provide additional application guidance.

Based on these decisions, the guidance regarding netting in the statement of cash flows would be something like:

Cash receipts and payments should not be offset (presented net) in the statement of cash flows unless there is no incremental value in the additional information provided in a gross presentation – that is, there is no benefit in a user of the financial statements knowing the two amounts; the net amount provides all of the information that is necessary.

Net presentation of cash flows is permitted in the following circumstances for financial institutions:

• Cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date
• The placement of deposits with and withdrawal of deposits from other financial institutions
• Cash advances and loans made to customers and the repayment of those advances and loans.

Application of the cohesiveness principle

At previous meetings, the IASB and the FASB agreed that the cohesiveness principle should be the governing principle in the financial statement presentation project.

Under the cohesiveness principle, assets and liabilities are classified into a functional category (operating, investing, financing, and the like). The classification in the statement of financial position dictates the treatment in the other statements. Accordingly, the income and expense (including gains and losses) associated with those assets and liabilities are presented in the corresponding category in the statement of comprehensive income, and the cash flows associated with those assets and liabilities are presented in the corresponding category in the statement of cash flows.

Classification and presentation of dividends payable

The Board discussed whether the corresponding dividend payment should be classified in the financing or equity section of the statement of cash flows. Under the current working principles, a liability for dividends payable is likely to be classified in the financing category. The cohesiveness principle would require classify the dividend payment in the financing section.

However, because dividend payments normally relate to transactions with owners in their capacity as owners, a classification in the equity section of the statement of cash flows may be more appropriate.

The Board decided that dividends payable and the related changes should be classified in the financing section.

Classification and presentation of foreign currency translation adjustments (FCTAs)

FCTAs relating to consolidated subsidiaries and proportionately consolidated joint ventures

The Board discussed the following alternatives:

Alternative 1:

Allocate FCTAs to the categories in which assets and liabilities of the subsidiaries and joint ventures are classified in the statement of financial position.

Alternative 2:

Do not allocate FCTAs but classify them in:

• (a) the operating category within the business section
• (b) a new FCTAs section.

There seemed to be consensus that alternative 1 would not be practicable for all entities. One Board member suggested to give entities the choice to apply alternative 1.

The Board agreed to include alternative 2(b) as the preferred view in the initial discussion document. However, both alternatives should be explored and constituents should explicitly be asked for their views.

FCTAs relating to equity method investments

The Board considered the following alternatives:

Alternative 1:

Classify FCTAs in the category in which the equity method investment is classified in the statement of financial position.

Alternative 2:

Classify FCTAs in a new FCTAs section.

The discussion focused on the question whether proportionally consolidated joint ventures and equity method joint ventures should be treated differently (which would be the case under alternative 1).

Finally, by majority vote the Board decided in favour of alternative 1. Board members in favour noted that this alternative is in compliance with the governing cohesiveness principle and that exceptions to this principle should be kept to a minimum.

Basket transactions

For the purpose of this project, basket transactions are defined as single transactions that involve multiple assets (or a combination of assets and liabilities) that would be classified in more than one category under the proposed presentation format.

The Board discussed whether the effects of basket transactions (revenues, expenses, and gains and losses in the statement of comprehensive income, and cash flows in the statement of cash flows) should be allocated to multiple categories.

The discussion focused mainly on the presentation of basket transactions in the statement of cash flows. Some Board members raised the concern that such an allocation may be arbitrary and/or burdensome and asked the staff whether an allocation method has been developed. The staff responded that it was seeking the Board's general view on allocation before continuing to develop an allocation method.

The Board tentatively decided to include the allocation requirement in the initial discussion document and directed the staff to develop an allocation method. Some Board members in favour of allocation noted that their views are subject to the development of a practicable allocation method.

Discussion at the November 2007 IASB Meeting

(The FASB staff joined the meeting by video link for this session.)

The Board continued its deliberations on various issues to be addressed in the initial discussion document of this project.

Statement of cash flows

The Board discussed which presentation formats for the statement of cash flows should be presented in the initial discussion document.

The discussion mainly focussed on the question whether the direct or indirect method of presentation provides more useful information to users of financial statements. Two Board members pointed out that, in their view, the indirect method is superior to the direct method in relation to the projection of future cash flows and that it has broad acceptance in practice. Board members in favour of the direct method stressed that this method achieves a high degree of cohesiveness with the statement of comprehensive income. Other Board members noted that both methods have their merits.

Finally, the majority of Board members were of the view that the direct method should be the preferred method. To generate discussion with constituents on this issue it was decided to illustrate both the direct and indirect method in the initial discussion document and to also describe advantages and disadvantages of both methods. When using the direct method an entity should use the same line items within the operating category on both the statement of comprehensive income and the statement of cash flows. The Board decided to describe two approaches of the direct method in the initial discussion document:

• 'Direct-direct" or 'bottom-up' approach: Under this approach, cash receipts and payments are determined by aggregating the cash flows amount from the cash ledger.
• 'Indirect-direct' or 'top-down' approach: Under this approach, cash receipts and payments are determined by adjusting items in the statement of comprehensive income (that is, revenue, expense, gains and losses) for the change in the related items in the statement of financial position over the period.

The Board acknowledged that the direct-direct approach may be very costly to implement and, therefore, an entity should be permitted to use the indirect-direct method. In addition, the Board agreed to seek input regarding the following issues:

• Costs and benefits associated with preparing a direct method statement of cash flows.
• For entities for which a statement of cash flows may not be relevant (such as financial institutions) ask how the statement could be modified to increase its relevance, or what information might be more relevant to be provided in place of the statement of cash flows.
• Whether the indirect schedule should continue to be required when the statement of cash flows is presented under the direct method and a reconciliation of statement of cash flows to statement of comprehensive income is presented.

Reconciliation schedule

The Board reaffirmed its preference for the disclosure of a reconciliation of the statement of cash flows to the statement of comprehensive income (the 'reconciliation schedule'). Such a schedule would begin with the line items and amounts in the statement of cash flows (based on the direct method) and reconcile to the amounts in the statement of comprehensive income.

The Board discussed which reconciling items (columns) should be required in the reconciliation schedule. The staff proposed that at a minimum the reconciling items should be disaggregated into the following four columns:

• Cash flows not affecting income
• Accruals and systematic allocations
  This column includes contractual accruals (such as changes in payables and receivables), systematic allocations (such as depreciation expense), other accruals and other non-remeasurements.
• Recurring valuation changes
  This includes changes to fair value from fair value only.
• Remeasurements other than recurring valuation changes
  In the staff's view these remeasurements are considered to be more persistent and separating these from recurring fair value changes would improve information.

The proposed format combines attributes of the preliminary IASB and FASB views and was labelled 'the converged view'. It is illustrated on page 4 of the appendix of agenda paper 7A available on the IASB website.

A number of Board members pointed out that it may be difficult to allocate reconciling items to the four columns and that divergence in practice may arise; for example, should impairment of inventories be included in 'accruals and systematic allocations' or 'remeasurements other than recurring valuation changes'? One Board member raised the concern that a fixed schedule could result in 'number crunching' to ensure that the schedule works out rather than providing useful information.

The Board decided to describe and illustrate the converged view in the initial discussion document and to seek feedback on the reconciling items (columns) including the definitions of the columns. In deviation from the format illustrated in agenda paper 7A the Board decided not to require a separate presentation of unusual or infrequent items.

Totals and subtotals in the financial statements

The Board discussed various alternatives for presenting totals and subtotals in the statement of financial position, statement of comprehensive income, and the statement of cash flows.

Common totals and subtotals

The staff presented the revised working format below including additional mandatory subtotals.

In general the Board agreed with the revised format. However, there seemed to be a consensus that no additional subtotals should be required for investing and financing items (subtotals A2, C1 and C2 above) because investing and financing items normally include only a few line items.

The Board noted that an entity should not be precluded from presenting additional subtotals in any of the statements.

The Board decided that an order of the sections in the statement of financial position (business, discontinued operations, income taxes, financing and equity) should not be prescribed. However, the same order of sections should be used in all statements.

Totals and subtotals unique to the statement of financial position

The Board made the following decisions:

• An entity that presents a classified statement of financial position should be required to present a subtotal for each short-term and long-term subcategory in each of the categories (unless there is only one line item in that subcategory). No further subtotals should be required.
• Operating assets should be separated from operating liabilities and an entity should be permitted but not required to include a subtotal for operating assets and for operating liabilities.
• The notes to financial statements should include totals for short-term assets, short-term liabilities, long-term assets, long-term liabilities, total assets, and total liabilities.

Totals and subtotals unique to the statement of comprehensive income

The Board decided to require the subtotal 'comprehensive income' in addition to the common subtotals required in the revised working format above.

Totals and subtotals unique to the statement of cash flows.

The Board decided that no additional subtotals should be required on the statement of cash flows other than the common subtotals required in the revised working format above.

Overall aggregation principle

The Board decided to add the following guidelines to the aggregation principle:

• An entity would be permitted to include additional line items on the financial statements and modify the descriptions used as necessary to explain the components of its financial results.
• Subtotals must flow from the order of the sections; that is, an entity cannot randomly choose subtotals or line items to add together.
• Additional subtotals an entity chooses to include should be presented with no more prominence than any required subtotals.

The staff was asked to prepare a draft of the initial discussion document reflecting the decisions made at this meeting.

Discussion at the March 2008 IASB Meeting - Phase B

Presentation of Income Tax Information

(FASB staff joined by video conference)

The staff introduced a paper which considered two issues:

1. Revisiting the Board's view, expressed in September 2006, that income taxes should be presented in a separate section in the financial statements, eliminating the need for intraperiod tax allocation.
2. The information an entity should disclose in the notes if income taxes are no longer allocated.

Issue 1: Presentation of income taxes

This issue was brought back to the Board for consideration as some IASB members have questioned the Board's preliminary view on the issue. The staff believed that given the amount of constituent input into the issue it would be helpful for all Board members to be reminded of the reasoning behind their views.

In presenting the paper the staff changed their stated recommendation. Their original recommendation was to not revisit the issue of income tax presentation until the Board has received comments on their preliminary view regarding the presentation of income taxes and related note disclosures through the normal due process procedures. The revised staff recommendation was that an analysis should be included within the discussion paper which expresses no preferred view, and includes at least one alternative.

The staff asked the Board to consider this recommendation.

One Board member noted that the issue to be addressed was one of disaggregation of the income tax number - whether the Board will require, prohibit or encourage disaggregation. A number of Board members expressed the view that some form of disaggregation is useful, and that it is not always arbitrary.

Four alternative methods of allocating (or disaggregating) income taxes was presented in the staff paper:

Alternative A. Allocate all income tax effects to each category/section in the basic financial statements. As a result, every category/section would be calculated on an after-tax basis.

Alternative B. Allocate income tax effects to selected categories, such as the operating category, and the other comprehensive income (OCI) and discontinued operations sections. Allocation to those categories/sections would be similar to the allocation that is done under existing standards (allocation to the operating category would be instead of allocation to continuing operations).

Alternative C. Allocate income tax effects to OCI items (or to the OCI section as a whole) and present the remaining income tax amount in the income tax section. (This would be a transitional alternative, only for the purpose of preserving a net income subtotal.)

Alternative D. Present on a net-of-tax basis transactions for which the income tax effect can be objectively calculated (a discrete transaction). The remaining income tax expense/benefit for the period would be presented in the income tax section as a single, unallocated amount. Example of discrete transactions that could be presented on a net-of-tax basis are a gain on the sale of real estate held for investment purposes or a gain on the sale of a business.

In addition, one Board member noted that a fifth alternative was also possible in which income tax effects were allocated, and net income was presented.

The Board discussed whether they supported the allocation of income tax effects or not. Views around the table were split, with some Board members expressing support for the Board to retain its original decision not to allocate income taxes, whilst others were in favour of allocating. Those Board members in favour of allocation suggested that in the vast majority of cases allocation can be achieved and, if allocation is required within the note disclosures to the financial statements, they see no reason why this cannot also be done for the financial statements. Other Board members expressed support for the revised staff view that an analysis should be included within the discussion paper which expresses no preferred view, and includes at least one alternative (a 'neutral' view).

The Board were asked by the staff to vote on how the discussion paper should proceed. They were asked (in three separate votes) to vote as to whether the discussion paper should provide a 'neutral' view, a preferred view of not allocating, or a preferred view of allocating. A simple majority (7 in favour) voted in favour of expressing a 'neutral' view. No majority was gained in voting for a preferred view of not allocating (4 in favour), or a preferred view of allocating (6 in favour). The Board therefore, agreed to include an analysis within the discussion paper which expresses no preferred view, and includes at least one alternative (a 'neutral' view).

The Board then moved on to discuss which of the five alternatives (outlined above) might be Board prefer to include in the discussion paper in relation to the possible methods of allocating income tax effects. Board members expressed mixed views and no conclusions were made. Staff were asked to produce a number of examples illustrating how the alternative allocation methods might be applied, and to include these in the discussion paper. The Board will reconsider the issue once the examples are completed.

Issue 2: Note disclosure if income taxes are not allocated

The Board then moved on to consider what information an entity should disclose in the notes if income taxes are no longer allocated. One Board member expressed the view that if the intention is not to allocate then requiring detailed disclosure is just another way of requiring allocation - albeit the information is just more difficult for users to find. Overall the Board was supportive of the staff view that an entity should disclose information in the notes to financial statements that will assist users in analysing income tax information, although the final format of that disclosure was not decided. Disclosures recommended by the staff (in addition, or as a replacement to IAS 12 and FASB Statement 109) included:

• (a) An explanation of the relationship between income tax and comprehensive income.
• (b) A qualitative discussion about each significant reconciling item in the reconciliation.
• (c) A qualitative discussion that explains the impact of income taxes on the operating, investing, financing, discontinued operations and other comprehensive income categories/sections of the statement of comprehensive income (to the extent not already covered by (b) above).

The staff advised that the next steps in the process was for a pre-ballot draft of the discussion paper be sent to Board members for the April Board meeting.

Discussion at the June 2008 IASB Meeting - Phase B

(FASB staff joined by video conference)

The purpose of this session was to resolve the open issues identified by the staff when drafting the pre-ballot draft of the forthcoming discussion paper (DP).

Implication of scope change

The Board discussed the implications of the scope changes agreed at the April 2008 joint board meeting. At that meeting the Boards decided to retain the existing guidance on presentation of other comprehensive income (OCI) in the statement of comprehensive income, not change existing standards regarding items to be recognised outside profit or loss and not include additional segment and liquidity disclosures.

Several Board members expressed their disappointment about the reduction of scope and noted that the most advantageous parts of the project have been excluded. In particular, one Board member noted that the part on segment disclosures would have been a good opportunity to eliminate flaws in IFRS 8 Operating Segments.

However, there seemed to be a broad consensus that the Board has to stick with the decisions made in April 2008 and consequently the following decisions were made:

• The project will not seek to change existing standards relating to which items are recognized outside of profit or loss, thereby retaining the current ad hoc approach to items reported outside of profit or loss and the recycling mechanism
• The DP will present two options for OCI presentation:
  • a. Present OCI items in a separate section similar to how OCI is presented in a single statement of comprehensive income.
  • b. Classifying OCI items within the operating, investing and financing categories.
• To include in the DP a paragraph explaining the Board's 'long term goal' of presenting all changes in assets and liabilities in one of the functional sections/categories in the statement of comprehensive income, that is, the goal to eliminate OCI items and the recycling mechanism. In addition, the DP will explicitly seek input from constituents on this long term goal.
• When OCI is presented in a separate section an entity should indicate what category (operating, investing or financing) each OCI item relates to.
• No further separation of OCI items should be required in the statement of financial position and the statement of cash flows.
• Not to include as part of this project additional segment disclosures.
• Not to include as part of this project liquidity disclosures. However, the previously agreed additional disclosures of contractual maturity information about short-term and long-term assets and liabilities should be retained in the project scope.

In addition the following decisions were made with regard to the scope of the project:

• Not to extend intraperiod tax allocation; i.e. income taxes should continued to be allocated in the statement of comprehensive income in accordance with current guidance and income tax assets, liabilities and cash flows should be presented in a separate section in the statements of financial position and cash flows, respectively.
• Not to change the requirements of earnings per share presentation; i.e. the current requirements of IAS 33 Earnings per Share will be not be changed.
• Not to include additional capital management disclosures; i.e. the current requirements of IAS 1 Presentation of Financial Statements would not be changed.
• Not to discuss offsetting of assets and liabilities as well as disclosures of information about measurement bases and measurement uncertainty; i.e. the current requirements of IAS 1 would not be changed.

Sweep Issues

Definition of operating and investing categories

The pre-ballot draft of the DP (some paragraphs were reproduced in the observer notes) stipulates that within the business section '(t)he operating category should include assets and liabilities that management views as related to the central purpose(s) for which the entity is in business (and changes in those assets and liabilities)' and that '(t)he investing category should include assets and liabilities that management views as unrelated to the central purpose for which the entity is in business (and any changes in those assets and liabilities)'.

Several Board members raised the concern that these definitions may lead to arbitrary classification and that the classification heavily depend on management's intentions (similar to the guidance in IFRS 8); e.g. management could try to move loss generating activities to the investing category. Other Board members responded that the risk of manipulation is relatively low since an entity needs to explain its classification at the beginning and has to stick with it. Finally the Board decided by majority vote to retain the definitions in the pre-ballot draft and to keep the labels operating category and investing category.

Labels for financing and equity sections

The Board was asked whether the labels of the 'equity' section and the 'financing' section should be kept or whether the labels should be changed to 'equity financing' and 'non-owner financing' in order to illustrate that both sections relate to financing. In addition, the FASB staff informed the Board that the FASB has tentatively decided to change the label of the 'equity' section to 'equity financing", thereby retaining the label 'finance' section.

The Board found it confusing to have a 'finance' section and an 'equity finance' section with the 'equity finance' section not being a sub-section of 'finance' and therefore disagreed with the FASB labelling.

The Board decided not to change the labels.

The reconciliation schedule and the indirect schedule

Regarding the reconciliation schedule (reconciliation of cash flows to net income) the staff suggested the following changes:

• The 'cash flows not affecting income' column should be eliminated from the schedule and be combined with the 'accruals and systematic allocations' column. The combined column should then be labelled 'accruals and systematic allocations that are not remeasurements'.
• The equity section should be omitted from the cash flow information that is used as the starting point for the reconciliation schedule.

One Board member noted that as a result of the first proposed change the reconciling item relating to cash inflows from issuing a bond would be shown in the 'accruals and systematic allocations that are not remeasurements' column even though such an item has nothing to do with accrual accounting. This Board member also pointed that the contents of this column would be heterogeneous and that some entities may even end up with only one reconciliation column. The staff responded that they are fully aware of these disadvantages but that the change was proposed because of difficulties in determining cash flows that never affect income. The staff noted that e.g. for zero coupon bonds the classification would be difficult and that there are many other items that do not affect income incidentally but may affect income later.

Eventually, the Board agreed to the staff recommendations.

Regarding the indirect schedule (reconciliation of net income to cash flows) currently required by US GAAP the Board decided that such a schedule should not be required under IFRSs and that the DP should not address the indirect schedule at all.

Disaggregation by function and nature

Subject to editorial changes the Board agreed to the preliminary views on disaggregation by function and nature in the statement of comprehensive income. According to the paragraphs reproduced in the observer notes an entity should disaggregate income and expense items first by function and should provide further disaggregation by nature with both disaggregation steps being required only when they enhance the usefulness of information.

The Board was concerned with the illustrative example provided by staff showing 27 line items in total continuing operating income alone. Several Board members noted that such a statement of comprehensive income would be much too detailed and that presenting cash flows in accordance with the cohesiveness principle would be burdensome. The Board asked the staff to emphasise in the DP that only the main items should be shown on the face of statement of comprehensive income and that further disaggregation should be presented in the notes.

The statement of changes in equity

The Board decided not to consider any further changes to the statement of changes in equity, i.e. to limit the preliminary views to the decisions already reached in phase A of the project.

Disaggregation in the discontinued operations section

The Board agreed not to include in the DP any specific disaggregation requirements for discontinued operations.

Disclosure of total assets and total liabilities

The Board decided that an entity should disclose total assets and liabilities either on the statement of financial position or in the notes. In addition, an entity that presents its assets and liabilities in short-term and long-term subcategories should also disclose totals for short-term assets, short-term liabilities, long-term assets and long-term liabilities.

Issues not yet fully deliberated

Foreign currency gains and losses

The staff noted that according to the decision not to address OCI issues the pre-ballot draft of the DP no longer contains the preliminary view that foreign currency translation adjustments (FCTAs) should be presented in a separate section. For the DP to be complete on foreign currency gains and losses the staff presented guidance on the classification of foreign currency gains and losses other than FCTAs.

The Board agreed to the staff recommendation to include the following preliminary view:

An entity should display transaction gains and losses, including the components of the net gain or loss on remeasuring the financial statements of an entity into its functional currency, in the same section and category as the assets or liabilities that gave rise to the gains or losses.

Basket transactions

This issue relates to the presentation of gains/losses and cash flows that result from single transactions that involve the purchase or disposal of multiple assets, or a combination of assets and liabilities, that are classified in more than one category under the working format (basket transactions).

The Board decided to present in the DP an allocation approach and alternatives for presenting basket transactions without allocating the effects to the multiple categories.

Regarding the allocation approach the Board decided that:

• Amounts allocated to determine gain or loss should be based on the relative fair value of non-cash assets, that is, no relative fair value allocations should be made to liabilities and cash.
• No hypothetical cash flows should be allocated to liabilities in a basket transaction, that is, no cash flows would be allocated to liabilities.

Way forward The staff intends to circulate to the Board a second pre-ballot draft in early July 2008 and a ballot-draft in August 2008. The DP will have a comment period of six months and is expected to be published in early September 2008.

Discussion at the July 2008 IASB Meeting

The Board discussed a sweep issue identified in the pre-ballot draft of the forthcoming discussion paper.

A paragraph in the scope section clarifies that presentation and reclassification (recycling) of OCI items is outside the scope of the project. Another paragraph in the pre-ballot draft states that 'the Boards expressed a preference for eliminating the recognition and presentation of other comprehensive income items outside net income and profit or loss and therefore also eliminating the need to subsequently recycle those items into net income and profit or loss' and that '(i)n the future, the Boards plan to undertake projects to eliminate the separate presentation of other comprehensive income items and related reclassification adjustments by revising individual standards'.

One Board member had questioned whether there is such a preference for eliminating OCI and noted that the Boards currently have no future plans regarding OCI.

The Board acknowledged that the current Board cannot bind future Boards regarding which projects are to be undertaken. Finally, the Board decided to keep the paragraph in the scope section but to be less specific regarding elimination of OCI. It was agreed to describe the discussion on OCI during the deliberations and to be silent on future plans.

October 2008: Discussion Paper on financial statement presentation

On 16 October 2008, the IASB and the US FASB jointly published for comment a Discussion Paper (DP) Preliminary Views on Financial Statement Presentation. The goal of the project is to create a standard that requires entities to organise financial statements in a manner that clearly communicates an integrated financial picture of the entity. The project is about how best to portray assets, liabilities, income, expense, cash flows and related information in financial statements. It is not about how those items are recognised or measured.

The boards propose the following two objectives for financial statement presentation:

• Cohesiveness. Formatting the information in financial statements so that a reader can follow the flow of information through the various statements
• Disaggregation. Separating information that responds differently to economic events

Building on those objectives, the DP proposes fundamental changes in the appearance of financial statements, both in their structure and the level of detail presented. Some of the key changes include:

• the line items presented, descriptions used and order of presentation would be aligned between the statements of financial position, comprehensive income, and cash flows
• the financial statements would be segregated into business activities (sub-categorised into operating and investing), financing activities, income taxes, and discontinued operations
• items would be classified in the financial statements based on a 'management approach', with further sub-classifications then required
• a reconciliation would be required between the statement of cash flows and the statement of comprehensive income.

The following table visualises the presentation formats proposed in the discussion paper:

The Comment Deadline is 14 April 2009. Click for Press Release (PDF 43k). The IASB's goal is to issue an exposure draft of proposed revisions to IAS 1 by 2010.

Deloitte's IFRS Global Office has published a special edition of our IAS Plus Newsletter Explaining the Discussion Paper (PDF 208k).

Discussion at the March 2009 IASB-FASB Joint Meeting

The FASB staff assigned to this project reviewed with the boards the field test on the presentation model proposed in the October 2008 Discussion Paper (DP), as well as the project plan.

Field Test

The boards are conducting a field test of the DP proposals to:

• determine whether the proposed presentation model improves the usefulness of the information in an entity's financial statements to users in making decisions in their capacity as capital providers; and
• understand the costs of implementing the proposed presentation model and identify any unintended consequences in applying that model.

The field test involves an expected 35 publicly-listed entities distributed across North America, Europe, India, Japan, Australia, and New Zealand. Industry sectors include conglomerates, manufacturing, retail, insurance, banks, and other services.

The staff explained that the field test has three parts:

1. Preparer information: recast financial statements, preparer responses to a post-completion survey, and cost estimates to implement the proposed presentation model. This phase is nearing completion.
2. Analysis: Quantitative information that will provide a description of the additions, changes, and movements of line items between the non-recast and recast financial statements. This phase is on-going and involves the staff analysing the results of the preparer information phase.
3. User information: responses to a survey of financial analysts about their review of specific recast and non-recast financial statements. This will be conducted later in 2009 and will involve analysts from buy side, sell side, and credit rating agencies, from around the world.

Preliminary results

The staff reviewed some high-level results based on the data they have received so far. Preparers, by a large majority, appear to like the management approach and the cohesiveness principle. It was thought that the approach helped them to identify their core operations and to explain their activities. Most unpopular were the reconciliation schedules and the direct method cash flow. With respect to the cash flow statement, none of the field test participants thought that they had financial systems in place to capture the data in sufficient detail to comply with the DP's proposals. In recasting their financial statements, most used a 'derived direct' method.

Board members discussed the preliminary results, trying to tease out some of the underlying reasons for the preparers' responses. In some cases, the staff were not in a position to answer because they were still analysing the data; in other situations the questions posed by the Board members had not been included in the questions posed to preparers.

The staff also outlined the approach for the analysts' phase of the field test. This will involve analysts reviewing 'masked' preparer data under original and recast versions and responding to a series of questions. It is hoped that each preparer set of data will be reviewed by five analysts. Again, Board members asked questions about the design of the survey.

The FASB staff also noted the work being conducted under the auspices of the FASB's Financial Accounting Standards Research Initiative (FASRI) that is conducting an experiment designed to examine how changes proposed in the Discussion Paper affect user judgments and decisions.

The staff hope that at the next joint meeting they will be able to discuss with the boards:

• Field test results (what did the recast statements look like, what did we learn from preparer and analyst participants), and the FASRI results.
• A summary of the key issues raised in the comment letters.
• What does the information we learn through the comment letters, field testing, and research experiments tell us about the proposed model and direction of project.
• The proposed objectives of financial statement presentation.

Discussion at the July 2009 Joint IASB-FASB Meeting

Project scope

The FASB informed the IASB that at its last meeting it agreed to propose to require one statement of financial performance with subtotals for net income and other comprehensive income. The staff asked the Boards to clarify whether this decision means enlarging the scope of Financial Statement Presentation project or if a short term convergence project on this narrow topic shall be initiated.

Most of the IASB members agreed that a single statement of comprehensive income was always the aim of the Board and agreed to initiate a short term project that would eliminate the separate income statement option from IAS 1. One Board member noted that the Board had to be very careful and as transparent as possible, given the comments from constituents during the last proposed amendments to IAS 1. Nonetheless, concerns would be alleviated by the fact that FASB would propose the same amendment. The Board also agreed to include in the project separate presentation of recycling and non-recycling items within other comprehensive income (OCI).

The chairman of the IASB suggested a plan how to tackle the question of recycling in the long term. All members agreed that this question was outside of the scope of the short term project and rules would be governed by the applicable standards. Nonetheless, from a long-term perspective, principles embodied in the conceptual framework should be used to develop a principle-based approach for OCI presentation.

The Boards discussed the tentative timetable for the move to a single statement of comprehensive income. The FASB plans to expose the proposal together with the financial instruments proposal. The IASB will discuss the proposal in September.

The Boards discussed whether the IAS 1 amendment should be adopted at the same time as financial instruments standard. IASB members noted that even if IASB decided to adopt the FASB approach for financial instruments it could manage with the old IAS 1, as a separate statement of comprehensive income exists under IFRSs (under US GAAP is included in the statement of changes in equity).

Plan for Deliberations

The Boards considered the planned deliberations for the Presentation ED given the comments from constituents on the Discussion Paper (DP). The staff noted that despite overall support for the principles in the DP, many constituents were concerned by the application of the basic principles, especially in the area of presentation of direct method of statement of cash flows, level of disaggregation on the face of the statement of comprehensive income, and the reconciliation schedule as a whole. Some Board members noted that reconciliation schedule could be simplified by a balance-sheet-to-balance- sheet reconciliation.

The staff plans to obtain input from the project's advisory group on 27 July 2009 and finalise the analyst portion of the field test. The Boards agreed with the plan of deliberations in September and October meetings and a joint meeting, with the aim to publish ED in April 2010.

Proposed Presentation Objectives

The Boards were asked by the staff to provide a high level direction on the question of presentation objectives given the comments by constituents on the discussion paper. The Boards generally liked the idea of rewriting the presentation objectives and principles and linking them to objectives of financial reporting. Board members were much less convinced about the need and usefulness of linking of those principles to qualitative characteristics and constraints of decision-useful information. Those members believed that this linkage would not be operational.

After a significant discussion the Boards agreed that cohesiveness should remain one of the main principles, but a cost benefit analysis is needed when applying the principles at the line-item level. The Boards noted that cohesiveness should lead to comparability, not to uniformity. Some Board members challenged this approach, as they did not feel it would be operational, but another member presented a convincing example of the sale of subsidiary, where cohesiveness at line-item level could lead to huge complexity. Another Board member noted that a kind of uniformity in taxonomy is necessary, especially when XBRL is implemented.

The Boards agreed that disaggregation of decision useful information shall be the core presentation principle with a cost-benefit analysis applied.

The Boards discussed objectives of liquidity and financial flexibility. The Boards agreed not to include them as core presentation principles, as they are embedded in the Conceptual Framework. One IASB member seemed to be particularly concerned by demotion of the liquidity objective in the time of financial crisis. The FASB members seemed also to be concerned as Framework is not part of the authoritative guidance. The Boards agreed to make these features more prominent as part of disaggregation principle.

The Boards agreed not to add stewardship as one of the core presentation objectives.

Finally, the Board tentatively agreed that Presentation project should be applicable all business models, including those of financial services institutions. Several Board members were concerned about the need for specific requirements for financial services institutions and the usefulness of the proposed statement of cash flows and reconciliation schedules to financial services entities. The staff noted that this is only a preliminary decision and this will have to be confirmed at the time the ED is prepared. The staff noted that it would seek feedback from the Financial Institutions Advisory Group.

Discussion at the September 2009 IASB Meeting – Educational Session

Results of the FASRI Experimental Study

The IASB received a presentation from Professor Robert Bloomfield (Cornell University), Director of the Financial Accounting Standards Research Initiative (FASRI), of the results of a study that tested the decision-usefulness of two proposals contained in the October 2008 discussion paper Preliminary Views on Financial Statement Presentation. The study had focused on two particular proposals in the discussion paper:

• classifying the statement of financial position, statement of comprehensive income, and statement of cash flows into operating, investing and other categories, and
• the proposal to disaggregate expense items in the statements of comprehensive income and cash flows by function and nature.

In particular, the study tested whether the way in which the classification and disaggregation were presented influenced the behaviour of a sample of credit analysts.

The key finding of the study was that appropriate decisions were most likely to occur when the classification and disaggregation were effected in the same place – that is, if the classification and disaggregation were performed on the face of the financial statements; or were made in the footnotes. Sub-optimal decisions were more likely when classification was made on the face of the statements with disaggregation in the footnotes, or if disaggregation was presented on the face of the financial statements with classification information in the footnotes.

Professor Bloomfield suggested that one of the most important findings was that the disaggregation of cost of sales was crucial to many credit analysts.

Analysts Field Test Results

Regenia Cafini (FASB staff) reported on the analyst portion of the field tests performed by the FASB and IASB. The field testing was conducted to test the proposals in the 2008 Discussion Paper. Of particular relevance to the proposals in the DP were the following findings:

• Analysts ranked 'increased disaggregation' as the most useful aspect of the proposed presentation model and the management approach to classification as the least useful aspect.
• Most analysts agreed with the proposed definitions of operating and financing. They were split evenly regarding the definition of investing. Most of the respondents thought that financial statements prepared according to the DP were better at presenting the operating and investing results of the companies they reviewed; however views were not as favourable with respect to the results of the entity's financing activities.
• Cohesiveness enhanced the usefulness of the income statement and the cash flow statement the most.
• The direct method presentation of cash flows was ranked as the third most useful aspect of the proposed presentation model. For the sub-group that reviewed a financial institution's financial statements, this was ranked second in usefulness.
• About 70% of the respondents indicate that the reconciliation schedule enhanced the decision-usefulness of the financial statements they reviewed. The 'cash' and the 'accruals and allocations' columns were cited as the most useful on the proposed reconciliation schedule.
• The majority of respondents do not think that the recast statements present the entity's liquidity and financial flexibility any better than the non-recast statements.

Another key finding was that many analysts who participated in the field test considered 'nature' (at least in the statement of comprehensive income) to represent 'fixed' versus 'variable', rather than any other possible attribute.

The Board thanked both presenters for their presentations, and their research teams, for their time and efforts, which would be most useful as the Board considered its next steps on this project.

Discussion at the September 2009 IASB Meeting

Classification: Definitions and Management Approach

The Board began reconsideration of the classification of information within the financial statements as proposed in the 2008 Discussion Paper (DP) Preliminary Views on Financial Statement Presentation. In particular, this session focused on the management approach for classification of items in the financial statements as well as the section and category definitions proposed in the DP.

Generally, the discussion was difficult, with the Board divided about the level of specificity that any future IFRS should contain and the consequences of any decisions in this project (and even this topic) on other topics within the financial statement presentation project and other Board projects.

Management approach to classification of assets and liabilities

The Board agreed to continue to develop an approach to classification based on how a reporting entity organises its activities and uses its assets and liabilities on the basis that it would provide the most decision-useful presentation of financial information for users of the financial statements.

Separating business activities from financing activities

The Board reaffirmed its preliminary view expressed in the DP that, with respect to the statements of comprehensive income and cash flows, the financial statement should distinguish the business activities of an entity from activities that finance those activities. However, peeking ahead to a discussion to be held in November, they reserved the possibility that the statement of financial position might be presented on a basis similar to the current format, but with more disaggregation.

Defining the financing section

By a slim majority, the Board agreed that the financing section should be defined narrowly as financial liabilities that have an agreed-upon schedule of repayment with an interest component (and that interest component is either explicit or implicit). Items directly related to those financial liabilities, such as fees would also be classified in that section. Derivatives held as part of an entity's non-equity sources of funding, regardless of whether it is an asset or a liability at the reporting date, would also be presented in that section.

There was a lengthy and somewhat confusing debate leading to this decision. Some Board members suggested that the financing section should also include financial assets if they are managed with related financial liabilities. Others were concerned about potential conflicts with the Board's decisions on the liabilities and equity project. Board members understood the frustration, but were not convinced that the liabilities and equity project should influence the categories presented on the balance sheet.

The staff will prepare a draft of the proposal and work with Board members off-line, returning to a public meeting if necessary.

Defining the business section

The Board was finely balanced between those who seemed to prefer being prescriptive about how activities were categorised and those who would not. There seemed to be consensus that the 'business' category should be the residual category, which placed strain on the financing category. The Board members with analyst backgrounds dominated the discussion, but did not agree. Some wanted structure without a great deal of prescription; others would err on the side of caution and would be more definitive about what should be categorised where.

A bare majority of the Board supported requiring no defined categories within the business section. Management would also have flexibility to devise groupings of information within the business section that assisted in communicating the relationships between groups of assets and liabilities.

Presentation of discontinued operations

The Board agreed that the forthcoming exposure draft should retain the DP proposal to present discontinued operations in a separate section in each financial statement. In addition, the exposure draft would not prescribe the level of detail that an entity should present about its discontinued operations or where that information should be presented.

Information about net debt

Whether to require information about net debt

The Board agreed that the forthcoming exposure draft should propose requiring information about net debt to be presented in the financial statements.

In the debate, it was apparent that how 'net debt' was defined would be critical. Several Board members were concerned that 'net debt' could be misleading if not presented and discussed carefully. For example, Board members were very concerned that inappropriate inferences about the ability to settle obligations with cash balances would be made. A common situation is that cash may reside in a favourable tax jurisdiction and could only be used to settle liabilities at the cost of a considerable tax penalty.

Defining 'net debt'

The Board discussed three alternative approaches to defining net debt. The concerns expressed in the previous discussion were again apparent as the Board sought to balance the need to develop a principles-based approach with the need to guarantee some degree of consistency among preparers. The Board concluded that 'net debt' should be defined to be the 'financing' category less the financial resources available to service those obligations.

How to present net debt information in the financial statements

The Board discussed several possible alternatives for presenting net debt. The Board indicated support for disclosure of net debt either on the face of the financial statement or in the footnotes, provided that it was not confused or mingled with the cash flow statement. In an indicative vote, the Board preferred a presentation that described net debt in a footnote, reconciling the movements in the components of net debt over the reporting period.

Discussion at the October 2009 IASB Meeting – Financial Statement Presentation Project Phase B

The statement of comprehensive income

The Board briefly considered the proposal to present a single statement of comprehensive income. The Board concluded that this topic would be addressed later this week as part of another project (proposed amendments to IAS 1) in response to a similar expected FASB proposal (as part of its financial instruments project).

The Board agreed to retain the requirement to identify and indicate on the statement of comprehensive income the category or section to which each item of other comprehensive income (OCI) (apart from a foreign currency translation adjustment on a consolidated subsidiary and proportionately consolidated joint ventures) related. The Board also discussed implications of this decision on some items in OCI (for example, cash flow hedge reserves) as it could mean that they might be split between the respective sections.

Income tax allocation and presentation

The Board agreed to propose in the forthcoming ED to retain the existing requirements on intraperiod tax allocation in the statement of comprehensive income. This may result in an entity presenting income tax expense or benefit in the discontinued operations and OCI sections in addition to determining the income tax effect for continuing operations (the income tax section).

The Board also tentatively agreed that existing requirement to disclose the amount allocated to each component of OCI should be retained. Nonetheless, the staff noted that this issue might be reconsidered following the decision on a single statement of comprehensive income later in the week.

Finally, the Board agreed that an entity should present current and deferred income tax assets and liabilities recognised and related cash flows in an income tax section on the statement of financial position and statement of cash flows.

Disaggregation by Function and Nature

The Board continued its discussions on the level of disaggregation in the financial statements. This was an educational session, and no formal decisions were taken.

The Board discussed a disaggregation principle that would require an entity to consider disaggregation by function, nature, and measurement basis in financial statements as a whole in a manner that provided transparency to that entity's business model and best representation how the entity used its resources to generate income and cash flows. This disaggregation principle would then apply not only to the statement of comprehensive income but also to the statement of financial position and the statement of cash flows.

Whilst the majority of the Board was contended with the overall direction of embodied in that principle, they expressed their concerns on how the principle was articulated. Some Board members were particularly concerned that the wording was too vague and a more rigorous wording would be required to ensure discipline to provide a proper level of consistency and comparability. Otherwise, they feared, it would give the preparers a carte blanche in determining the level of disaggregation. Especially, the representatives of analysts among the Board members were concerned that applying the proposed principle could lead to essential information not being disclosed. On the other hand, some other Board members felt that some level of flexibility was necessary and it reflected different characteristics of different industries (for example, financial institutions).

On balance, the Board saw merit in the proposed principle but asked the staff to reformulate it, articulate more clearly the objectives and accompany the principle with additional application guidance and examples how that principle might impact the presentation of primary financial statements. The Board will reconsider this principle on the joint meeting with the FASB next week.

The Board considered where in the financial statements the disaggregated information should be presented. Most of the Board members were concerned that the level of disaggregation would lead to the primary financial statement being too cluttered with data leading to reduction in relevance and understandability.

Whilst most of the Board members concurred with the proposal to present disaggregated information on the face of the financial statements for entities with one reportable segment and to present that information in its segment note for an entity with more than one reportable segment, they were concerned that segment note was based on a different measurement basis (non GAAP numbers). The presentation of disaggregated information would be reconsidered at the October joint meeting with the FASB. Nonetheless, the Board thought that the forthcoming ED might ask the question whether segment reporting note should be amended to reflect the GAAP measures.

Discussion at the October 2009 Joint IASB-FASB Meeting – Financial Statement Presentation Project Phase B

The staff addressed the following four topics regarding the discussion paper, Preliminary Views on Financial Statement Presentation:

1. The statement of cash flows
2. The reconciliation schedule
3. Disaggregation by function and nature
4. Classification: section and category definitions

Statement of Cash Flows

Presentation of Cash Flows Using the Direct Method

The staff began the discussion with a refresher of the feedback received from preparers and users of financial statements during an April 2009 meeting. The main theme of the feedback from preparers and the users was discussed with regards to the use of the direct method of cash flow presentation. Preparers believe that using the direct method is costly and may provide little benefit while users generally believe that this method is useful when prepared using disaggregated information. In hearing both groups, the staff believes that there may be support for a direct method of presentation supplemented with additional indirect information in the financial statements.

As such, the staff presented two alternatives to present cash flow information. In the first alternative, an entity would prepare its statement of cash flows using a less disaggregated (than as described in the discussion paper) direct method of presentation while presenting indirect information in the notes to its financial statements. Under the second alternative, the entity would prepare its statement of cash flows using an improved indirect method of presentation coupled with supplemental disclosures.

The Boards agreed with the staff's recommendation of using the first alternative when presenting information on the statement of cash flows. They believe that an entity should be required to present line items for cash receipts and payments in each section (and category) of the statement. In addition, they believe that an entity should reconcile operating income to cash flows from operations because it will provide the most meaningful information to users (e.g., changes in working capital assets and liabilities). The Boards also expressed the view that the upcoming exposure draft should only require a single method of cash flow presentation and not provide alternative methods.

Disclosing Non-Cash Information

Also discussed during the staff's research and user/preparer outreach discussed above was the notion that non-cash information does not necessarily represent cash flows and as a result, reduces a user's ability to assess the quality of reported earnings. While acknowledging this concern, the staff recommended to the Boards that the requirement in the discussion paper be retained. That is, an entity should be required to disclose non-cash information in notes to financial statements. The Boards agreed with this recommendation.

Other Cash Flow Related Disclosures

The staff recommended to the Boards that disclosure of repatriation limitations and other restrictions on cash should be disclosed in the footnotes to the financial statements. The Boards agreed with the staff's recommendation as they believe the information can be useful to a capital provider.

The Reconciliation Schedule

Because many users and preparers had questioned the proposed reconciliation schedule, through comment letters and user/preparer outreach, the staff discussed whether the Boards should reconsider this schedule to reconcile cash flows to comprehensive income. Concerns were focused mainly on the scale of the reconciliation, the particular accounts being reconciled, and the notion that the focus of the reconciliation should be on the distinction of changes in assets and liabilities that are attributable to remeasurement from those that are not.

The staff recommended a proposal that includes a revised reconciliation schedule that would analyse only the changes in 'significant' line items and that remeasurements be displayed separately on the statement of comprehensive income. While not specifically defining significant, the staff recommended to the Boards the following list of factors that an entity may use when determining which changes in line items to analyse:

• the significance of the ending balance with respect to total assets or total liabilities
• the significance of a change in the account balance with respect to revenues or expenses
• the significance of the activity flowing through the account with respect to revenues or expenses
• the use of assumptions or judgments in measuring the asset or liability and the degree of uncertainty or variability in the measurement due to risk exposure and the nature of that exposure (for example, credit, foreign exchange, interest rate)
• the nature and magnitude of transactions or events that are non-routine or non-repetitive
• any other transaction or event that could affect the future investment or credit decisions of a reasonable investor, creditor, or other user of financial statements

The Boards agreed with the staff's recommendation to revise the reconciliation schedule to only analyse changes in significant line items. However, the Boards did not reach agreement on the separate depiction of remeasurements. Some Board members questioned whether the depiction of remeasurements improved financial statement presentation while others questioned how entities would display this information (2 or 3 column reconciliations versus footnote disclosures). The staff was encouraged to consider further analysis on the merits of such information and the method for which to display it.

Disaggregation by Function and Nature

In light of feedback from various groups, the staff refined its thoughts on (a) the level of disaggregation an entity should present in its financial statements (Issue 1) and (b) where disaggregated information should be presented to be most decision useful in predicting future cash flows (Issue 2). The staff recommended to the Boards that in Issue 1, the discussion paper proposal that specifically requires disaggregation by function and nature on the statement of comprehensive income would be replaced by a disaggregation principle that requires an entity to consider disaggregation by function, nature, and measurement bases in the financial statements as a whole. This would mean the Boards would not specifically require an entity to disaggregate information in the statement of comprehensive income by function and nature. In Issue 2, the staff recommended that an entity that has only one reportable segment present its disaggregated information on the face of its primary statements and that an entity that has more than one reportable segment should present its disaggregated information in its segment note.

For both issues, the Boards conceptually agreed with the staff's recommendation. For Issue 1, the Boards encouraged the staff to further refine a principle for which an entity would base its disaggregation on. For Issue 2, while the Boards agreed with the staff's recommendation that an entity with multiple reportable segments present its information in its segment note, they questioned why the proposal would require an entity with only one reportable segment to present its information only on the face of the primary statements. They encouraged the staff to consider whether an entity with a single reportable segment should be allowed to present its information in its segment note as well.

Classification: section and category definitions

The staff discussed the following recommendations, all of which the Boards agreed with, relating to the section and category definitions to be used in the upcoming exposure draft:

1. A treasury category should not be included in the financing section.
2. Retain an operating and investing category in the business section of each of the financial statements. Those categories require a reporting entity to make a distinction between business activities that are active in nature (operating category) and business activities that are passive in nature (investing category).
3. Equity should be a category in the financing section.

The staff clarified that any decisions made on the related to the section and category definitions were be used as a basis for future deliberations. As such, the staff indicated that the definitions will continue to evolve.

Next Steps

While not discussed at the meeting, information regarding the staff's next steps and the overall technical plan was provided in a handout at the meeting. The handout listed the following items to be discussed in November thru January leading up to the publication of an exposure draft in April 2010:

• Statement of financial position
• Financial services entity issues
• Non-controlling interests
• Basket transactions
• Foreign currency exchange transactions
• Segment disclosures
• Bringing it all together – the core presentation principles and the resulting financial statements.
• Nonpublic entity scope issue
• Overall costs and benefits of the presentation model
• Transition and effective date.

Discussion at the December 2009 IASB Meeting

Definition of remeasurements

The Board discussed a staff recommendation to state that an objective of presenting remeasurement information is to enable users of financial statements to identify components of comprehensive income that are not persistent (that is, not indicative of future amounts of income) and those that are.

The staff recommendation also included explanatory guidance giving examples of items which would be considered to be remeasurements.

Various Board members expressed doubts about whether the principle of 'persistence' was generally well understood and whether the definition and explanatory guidance were sufficiently clear.

A Board member questioned whether the definition should be broader, including items such as inventory impairments and changes in tax rates.

The Board tentatively decided (by a narrow majority) to include the proposed objective in the exposure draft.

By a wider majority, the Board also tentatively decided to retain the following definition of a remeasurement:

'A remeasurement is an amount recognised in comprehensive income that reflects the effects of a change in the carrying amount of an asset or liability to a current price or value (or to an estimate of a current price or value). A current price or value includes the following measurement attributes: fair value, fair value less costs to sell, value in use, and net realisable value.'

and to include the proposed explanatory paragraphs giving examples of remeasurements.

An additional staff recommendation was made to provide guidance on the extent to which an item would need to apply observable market data to qualify as a remeasurement. It was suggested that such guidance could be confusing, and no vote was taken on the proposal.

Presentation of remeasurements

The staff presented three alternatives for the presentation of remeasurements:

• Alternative 1: Remeasurement information presented only as part of the analysis of changes in statement of financial position line items.
• Alternative 2: Disaggregation of the statement of comprehensive income into a two-column format ('income and expense except for remeasurement' and 'remeasurements') with an optional third 'total' column.
• Alternative 3: Present remeasurements in a single note to the financial statements.

The staff recommendation was for Alternative 2.

A number of Board members said that Alternative 2 was hard to read and would still need analysis in the notes to the financial statements. Another Board member voiced concerns about the optionality introduced by the choice of inclusion or non-inclusion of a 'total' column under Alternative 2.

In respect of Alternative 3, concerns were raised about the potential for duplication of information already presented elsewhere in the financial statements (in particular, items of Other Comprehensive Income).

The proposal to adopt Alternative 2 received little support, with a large majority of Board members voting to approve tentatively Alternative 3.

Application of the cohesiveness principle to the statement of financial position

The Board discussed a staff recommendation to require the statement of financial position (as well as the statements of comprehensive income and cash flows) to apply the cohesiveness principle: that is, that the statement of financial position should be categorised into operating, investing, and financing assets and liabilities.

Individual Board members raised concerns over the potential for arbitrary classifications of, for example, retirement benefit obligations, but the Board tentatively decided by a wide margin to accept the staff recommendation.

Determination of classification based on the statement of financial positions

The Board discussed a staff recommendation that the classification of an item should be determined based on the statement of financial position, with that classification then applied to the statement of comprehensive income and the statement of cash flows according to the cohesiveness principle.

Board members questioned whether this requirement would have any effect in practice, as sufficiently clear definitions should lead to the same classification regardless of which statement is considered first.

Other members raised concerns about individual assets or liabilities that arise from a combination of operating and non-operating transactions (for example, retirement benefit obligations, debt factoring, and finance leases).

The staff recommendation did not receive majority support from the Board members.

Application of the cohesiveness principle to items that may have both operating and financial components

The staff presented proposals for dealing with items such as retirement benefit obligations and asset retirement obligations, which include both operating and financial components. The following alternatives were presented:

• Alternative 1: Present all such items as operating
• Alternative 2: Present all such items as financing
• Alternative 3: Present all such items as financing except for the cash contributions to a pension plan
• Alternative 4: Add a new category labelled 'financing arising from operating activities'

These proposals were debated at some length, with Board members raising a number of concerns. One Board member stated that including pension remeasurements in operating would never be acceptable to users, another that they had always considered pensions to be financing in nature.

Alternatives 1 and 3 received little support, with the Board deciding by a narrow margin to move forward tentatively with Alternative 4.

Statement of Financial Position

The staff presented a number of proposals in respect of the statement of financial position.

• To include in the exposure draft illustrations of alternative displays of the statement of financial position (such as columnar or assets on the left and liabilities and equity on the right).
• To require total assets, total liabilities, and subtotals for short-term assets and liabilities to be presented on the face of the statement of financial position.
• To propose that a classified statement of financial position should be presented except where presentation in order of liquidity provides more relevant information.
• To propose that a classified statement of financial position must present assets and liabilities in short-term and long-term subcategories based on a fixed period of one-year.
• To drop the proposal to require disclosures on the maturities of short-term contractual assets and liabilities in the notes.
• To require cash to be presented at the entity rather than the segment level (that is, as a single balance in one of the three categories).
• To present and classify items currently termed 'cash equivalents' as short-term investments.
• To require the presentation of bank overdrafts as financing items.

Individual Board members raised concerns about the wording of the guidance on liquidity presentation, noting that it could be read that an entity in financial difficulty would be required to apply such a presentation when there should be a free choice.

The classification of assets and liabilities as long or short-term on a fixed one-year basis was noted as potentially problematic for entities with longer operating cycles.

All of the above proposals were tentatively accepted by the Board.

Disaggregation

The Board discussed a proposal to require the statement of financial position to present separately assets and liabilities with the same nature but different measurement bases.

Board members raised concerns over the potential for excessive detail in such a presentation due to the large number of measurement bases applied under IFRS. The Board tentatively accepted a revised proposal to present assets and liabilities measured on a cost basis separately from those at current value.

In addition, the staff proposed to amend the minimum line item requirements of IAS 1 to disaggregate (for example) PP&E into three lines (property, plant, and equipment).

A number of Board members questioned whether this was essentially an XBRL issue, and others highlighted the need for some guidance on appropriate levels of aggregation in the statement of financial position. The proposal was, however, tentatively approved by a majority of Board members.

Miscellaneous Issues

Basket transactions The staff presented three alternatives for the classification of basket transactions (being transactions that recognise or derecognise assets and liabilities classified in more than one category, for example a business combination).

• Alternative A Present in the operating category
• Alternative B Present in the category that reflects the activity that was the predominant source of these effects
• Alternative C Present in a separate section

The staff recommendation was for Alternative B but this was not generally accepted due to concerns over determining 'predominance' and the potentially distorting effect of a major acquisition on operating cash flows. The Board tentatively decided to proceed with Alternative C.

Foreign currency transaction gains and losses

The staff proposed that foreign currency gains and losses be presented in the same category as the assets or liabilities that gave rise to the gains and losses. This proposal was tentatively approved by a large majority of Board members.

Discussion at the January 2010 IASB Meeting

Segment disclosures and the FSP project

The Board briefly considered possible changes to the IFRS 8 Operating Segments following the discussion during the joint meeting. The Board disagreed with any changes to IFRS 8 that would lead to changes in fundamental principles of IFRS 8. The Board noted that the FSP project was not the right place for changes to IFRS 8 and that the relevant issues should be addressed as part of the post-implementation review of IFRS 8 that should start during the following year.

Financial services entity issues

The Board considered specific issues related to the financial services entities. The Board noted that of the raised concerns, most of the issues were resolved during the re-deliberation process (line-by-line cohesiveness, short-term liquidity disclosures, and reconciliation schedule and category definitions).

The Board considered the requirement to present a direct method Statement of Cash Flows so that the Statement of Cash Flows reflected the substance of its transaction. The Board discussed the gross presentation of transactions (that is, whether to separately depict the transactions from and to depositors' accounts). Some Board members held the view that gross depiction of these transactions was not particularly useful as it related to hypothetical transactions. On the other hand, other Board members noted that it might provide some useful information.

Some Board members reiterated their view that Statement of Cash Flows was not useful for financial services entities. They proposed to require a 'statement of flow of funds' that would consider issues as volume of transactions, credit quality, and liquidity.

After a considerable debate during which the Board tried to assess the impact of various transaction on the Statement of Cash Flows, the Board asked the staff to prepare a further analysis that would include examples of application of some of the transactions on the Statement of Cash Flows prepared using the proposed direct method as well as analysis of the 'statement of flow of funds'.

Costs and benefits

The Board briefly considered the costs of the proposal. The Board agreed to seek input from constituents on the estimated cost of the overall proposal and its components (the Board would try to identify which requirements are most costly and difficult to implement). The Board also agreed to undertake outreach to assess the estimated costs considering one-off and ongoing costs, indirect costs of implementation, and on the internal control systems.

Net debt presentation

After a brief debate, the Board agreed to require disclosure of an analysis of the changes in the balances (roll-forward) of line items that normally constitute net debt (long-term debt, short-term debt, interest payable, cash, marketable securities, interest bearing deposits). The Board agreed to require disclosure of these data in a single note.

The Board also agreed not to specifically define 'net debt' and asked the staff to find suitable name for this disclosure (and not refer to it as 'net debt').

Discussion at the February 2010 Joint IASB-FASB Meeting

Analysis of changes in balances of assets and liabilities

The Boards were asked to deliberate three implementation issues related to the tentative decision, taken at the October 2009 joint meeting, to require the presentation of changes in the balances of all significant assets and liability line items in the notes to the financial statements. Without any discussion on the matter, the Boards agreed that the analyses of changes should be presented in the context of related information as long as the analysis is accompanied by adequate narrative and descriptive explanations. When asked whether the analysis should be presented for the current period only or for comparable period as well, the Boards agreed that the current period financials would drive the presentation of the financials for prior periods and that an exception from providing comparative information is, therefore, not needed.

As some Standards in both accounting frameworks already require a reconciliation of the beginning and ending balance of some items, staff presented three alternatives for handling the existing requirements for specific reconciliations:

• Alternative A: the requirement to present analyses set out in the Financial Statement Presentation (FSP) Standard would supersede any existing requirements;
• Alternative B: maintain existing requirements. However, guidance on how to present the reconciliation would be removed from existing standards and replaced with a reference to the new FSP Standard; or
• Alternative C: maintain existing requirements and guidance on how to reconcile specific line items with an additional requirement that those reconciliations should be consistent with the requirements of the new FSP Standard.

Some Board members expressed concerns that preparers will see this requirement in a negative light and regard it as 'pile-on' of disclosures. One Board member suggested asking constituents a specific question on what reconciliations should be deleted or what information they fear would be lost if these reconciliations are no longer provided. Another Board member noted that there is an expectation that the Boards will address the information overload required by the various Standards, but that will be better dealt with as part of the Disclosure Framework. When asked to vote on the matter, the Boards tentatively agreed with Alternative C and that the analysis should explain the nature of the transaction or event that gave rise to the change separately distinguishing within each component any elements of change that are different from the others.

Definition of a remeasurement

Following consultation between the staff and a subset of Board members on an appropriate definition of a remeasurement, the Boards considered the following proposed definition of a remeasurement

an amount recognised in comprehensive income that reflects the effects of a change in the net carrying amount of an asset or liability and is the result of:

• a. a change in (or transacting at) a current price or value;
• b. a change in an estimate of a current price or value; or
• c. a change in any estimate or method used to measure the carrying amount of an asset or liability.

Some Board members expressed their concern that by including all three changes listed above may be excessive disaggregation, although they also admitted that by only including changes (a) and (b), there may be inadequate disaggregation. One Board member questioned how an entity should distinguish between a change in estimate and a remeasurement if all changes in the measurement of an item are regarded as remeasurements. Another Board member went further by fundamentally disagreeing with the proposal on the grounds that the definition of a remeasurement does not clearly articulate what a remeasurement is. The Boards deliberated the proposed definition further and tentatively confirmed the proposed definition and related guidance, but agreed to include a specific question on the proposed definition in the ED.

The Boards further tentatively agreed to exclude the sale of inventory from the presentation of remeasurement information. However, other remeasurements that relate to inventory and receivables would not be excluded from the requirements.

The Boards were also presented with proposed application guidance on remeasurements to be included in the ED. Although the Boards did not express any general disagreements with the proposed guidance, they agreed that Board member comments on this guidance will be addressed outside the meeting.

New categories for 'financing arising from operating activities' and 'assets and liabilities arising from equity'

The Boards tentatively confirmed a proposal to include a subcategory for financing from operating activities in the operating category of the Statement of Financial Position and the Statement of Comprehensive Income for all liabilities (and assets bound to the related obligation for the purpose of settling the liability) that

• do not meet the definition of financing;
• are initially long-term; and
• have a time value of money component evidenced by either interest or an accretion of the liability due to the passage of time.

The Boards then considered how to present dividends payable or instruments entered into as part of an entity's capital raising activities that do not meet the definition of equity. Based on the outcome of consultations between staff and a small group of Board members, the Boards tentatively agreed to revise the definition of debt to include assets and liabilities that arise from transactions involving an entity's own equity, such as:

• dividends payable,
• written put options on an entity's own shares, and
• a prepaid forward purchase contract for an entity's own shares.

Statement of Cash Flows for an entity with funds held on deposit

The Boards continued their discussion from the January 2010 joint meeting on whether a direct method Statement of Cash Flows (SCF) should be required for financial services entities.

The Boards tentatively decided to include the existing guidance in IAS 7 and Topic 230 about the types of cash flows that may be reported net, without an exception for loans made to customers and principal collections of loans.

Some Board members commented that there is general opposition from financial institutions to their presenting a Statement of Cash Flows as the information provided is not considered useful. They would rather present liquidity tables than a statement of cash flows. Other Board members noted that making a fundamental change to the direction of project will further delay the issuing of the ED. The Boards tentatively confirmed the recommendation that financial institutions be required to present a direct method SCF, showing cash inflows and outflows between the entity and its depositors as if they were settled by external funds.

It was agreed to include, in the ED, a specific question to financial institutions on whether they prefer the direct method statement of cash flows or the indirect method along with more aggregation of information, as well as seek input on the costs and benefits of presenting cash flows in such a manner.

Divergent issues

The Boards attempted to resolve some of the differences in their tentative decisions on the presentation of certain items.

Analysing changes in specific line items

The IASB tentatively decided at its January meeting to require an analysis of all the line items in the debt category, cash, short-term investments and finance leases in a single note disclosure. The FASB indicated that they did not want to include a similar requirement, although it will ask constituents whether the information is considered relevant.

Minimum line items

The FASB indicated that it did not wish to require the inclusion of minimum line items, similar to the IASB requirements, in the Statement of Financial Position or the Statement of Comprehensive Income.

Presentation of remeasurement information

At previous meetings, the FASB indicated that it did not want to change its tentative decision to require presentation of information on remeasurements in the SCI, however, following the earlier discussion about remeasurements, the FASB tentatively decided to align its presentation requirements to that of the IASB.

Sweep issues

The Boards discussed several matters carried forward from the discussion paper that have not yet been discussed as respondents to the discussion paper had little or no concern about those particular proposals.

The Boards reconfirmed their intentions that a separate Statement of Changes in Equity must be presented and that only the components of changes in equity could be presented in the notes to the financial statements.

Some Board members questioned whether an accounting policy disclosure on the classification of assets and liabilities in operating, investing, financing assets and financing liabilities is still needed as the classification is based on the business model of the entity. It was confirmed that there has been a change in the Boards' position on classification from the discussion paper to the exposure draft as the various categories are now clearly defined.

Without further discussion, the Boards confirmed the staff recommendations with regards to:

• not retain the requirement to disclose information about the maturities of contractual long-term assets and liabilities, as other Standards already require similar information to be disclosed;
• clarify that cash inflows and outflows related to VAT may be netted in the SCF. In addition, the general offsetting principle in IAS 1 will be included in the ED;
• include guidance on the disaggregation of information in the SCF for purposes of preparing a direct method SCF;
• require the presentation of subtotals and headings.

Support for package of decisions

The Boards discussed the length of the comment period for the ED as the presentation model proposed in the ED retains the basic principles proposed in the discussion paper. The Boards agreed to provide a comment period of 5 months. The Boards also supported the drafting and publication of an ED based on the package of tentative decisions.

One FASB member indicated a possible dissent from the ED related to the direct method SCF. Three IASB members indicated that they would definitely dissent from the ED, with two more members indicating that they may also dissent. In general, the reasons for their dissent relate to the direct method Statement of Cash Flows, concerns that the project did not achieve improvement from existing requirements, and that the costs of providing the additional information outweigh the benefits achieved by users.

Discussion at the Special 3 March 2010 Joint IASB-FASB Meeting

Transition and effective date

The Boards considered the transition requirements for the project. Most Board members expressed their preference for full retrospective application of the proposals.

Some Board members were concerned by the staff's assumption that a lead time of at least 4 years after the publication of the IFRS would be necessary, particularly to enable entities to change their systems for the direct cash flow method and by-nature disaggregation. Those Board members suggested that if the direct cash flow method required additional lead time it should be applied prospectively, whereas the rest of the document should be applied retrospectively.

Other Board members warned against such an approach. They noted that in that case entities would need to change their systems twice, which would lead to additional costs.

Finally, the Boards agreed to consider the transition requirements of all Memorandum of Understanding documents together with the expected effective dates. The Board also agreed preliminarily to propose full retrospective application and to ask constituents about the required lead time and potential problem areas in implementation of the proposals.

The IASB agreed to permit early adoption for first time adopters, mainly due to the concerns that, otherwise, two systems changes within a short period might be required.

The Boards agreed to address the early adoption by the existing IFRS preparers as well as interrelationship of timing with other projects comprehensively within a special document on effective date and transition requirements of major projects that would be completed within the MoU.

Discussion at the 11 March 2010 Special Joint IASB-FASB Meeting

The Boards discussed two sweep issues identified by the staff while preparing the pre-ballot draft of the forthcoming exposure draft.

Sweep issues: IFRIC issues related to the requirements for comparative information

Through the IFRIC the Boards have become aware that a diversity of views exists as to the requirements for comparative information when an entity provides individual financial statements beyond the minimum comparative information requirements. Those issues are a result, at least in part, of guidance added as part of the 2007 revision of IAS 1.

Comparative information

The Boards discussed the issue in the context of the following example. An entity provides selected financial statements in addition to those required as a minimum within a complete set of financial statements prepared in accordance with IFRSs. For example, a calendar year end entity provides the following financial statements for its year ended 31 December 2009:

1. Statements of financial position as at 31 December 2009 and 2008
2. Statements of each of the following for the years 2009, 2008, and 2007 (one more than the minimum required by IAS 1):
   • (i) Statement of comprehensive income
   • (ii) Statement of changes in equity
   • (iii) Statement of cash flows

With little discussion, the Boards agreed that exposure draft should clarify that only the minimum comparative periods are required for a 'complete set of financial statements'. Presenting selected additional comparative information is acceptable, provided it is not misleading. That is, the additional financial statements must be prepared in accordance with current IFRSs and presented with equal prominence as the other periods – but a 'complete set' is not required (in the example above, a 31 December 2007 statement of financial position is not required).

Opening statement of financial position

The Boards addressed the issue of what should be considered as the 'statement of financial position for the earliest comparative period presented' when additional selected comparative financial statements are presented for the comparative period.

Using the example from the previous issue, given that the entity has presented annual statements of comprehensive income, changes in equity and cash flows for the three years ended 31 December 2009, 2008, and 2007, and has presented two statements of financial position as at 31 December 2009 and 2008, what should be the 'statement of financial position for the beginning of the earliest comparative period'?

The Boards had a lengthy discussion, during which various alternatives were explored and modified or rejected. The two Boards noted that what was 'required' and what was 'optional' would often be driven, for publicly-listed companies at least, by securities market and other regulatory requirements. To comply with local regulatory requirements, an entity might have to provide information not required for the financial statements to 'comply with IFRS'. That additional information would be subject to the regulator's requirements, but would not ordinarily affect the statement of compliance with IFRSs.

The Boards finally agreed that, for the example under discussion, the 'statement of financial position for the beginning of the earliest comparative period' would be that of 1 January 2008. In addition, the footnote disclosure for that statement would not be required to claim compliance with IFRS.

The Boards discussed whether the January 1 2008 statement was the same as the statement prepared as of 31 December 2007. The Board agreed that it was, subject to the application of any retrospective adjustments for accounting policies adopted on 1 January 2008. Significantly, the Boards agreed that any adjustments to the statement of financial position between 31 December 2007 and 1 January 2008 should be explained in the footnotes.

Presentation of OCI items related to a discontinued operation

In October 2009, the Boards agreed that an entity must identify and indicate in the statement of comprehensive income whether an item of other comprehensive income relates to (or will relate to) an operating, investing, or financing activity. The staff noted that the requirement should logically be extended to include items related to a discontinued operation.

The Boards agreed with the staff and requested that the forthcoming exposure draft clarify this proposed requirement.