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.