Financial Statement Presentation
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.
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.
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.
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.
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.
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.
The Board agreed to revise the working principle as follows:
Financial statements should present information in a manner that disaggregates line items if that disaggregation enhances the usefulness of that information in predicting future cash flows.
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.
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.