- Segment B: project objectives and planning.
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).
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.
The Board agreed to change the working title of the project to 'Financial Statement Presentation for Business Entities'.
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.
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.
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).
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.
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.]
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.
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.
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 some time in first quarter 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.