Financial Statement Presentation
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.
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:
- 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.
- 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.
- 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.
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.