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IAS 1 — Narrow focus amendments

Date recorded:

The staff made recommendations for proposed narrow-focus amendments to IAS 1 Presentation of Financial Statements. Four papers were presented to the Board, the minutes have been summarised in order of paper presented below.

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Paper 8A: Disclosure Initiative: an overview

The staff summarised identified areas for consideration for the Disclosure Initiative purposes. This includes the following:

Short term

Amendments to IAS 1 – the staff have the view that current wording in IAS 1 allows for interpretation by entities that does not result in useful disclosure. A paper will be presented to the Board at the October 2013 Board meeting on considering the requirement to reconcile net-debt if disclosed as part of this project.

Materiality – assessment of existing guidance – the staff intent to present a paper to the Board on this in Q1 2014 with the aim of further guidance on materiality and application. The staff clarified that in the paper that will be presented to the Board in Q1 2014, this will discuss the matter of scope of the amendments, that is, if it should address materiality on disclosures alone or the broader concept of materiality.

Review of new EDs disclosure requirements – the staff clarified that the focus of this project is to determine how to formalise the process for setting the disclosure requirements and how to draw attention to them in the standard setting process, not about rewriting the disclosure requirements.

Long term

Research project – IAS 1, IAS 7 and IAS 8 – FSP project – longer-term research project on whether the work previously done on the FSP project could form the basis of a research project, performed in parallel with the Conceptual Framework.

Review of existing standards – research project to review disclosure in IFRS more holistically.

The proposed time frame is:

20132014Comments
Q3-Q4Q1Q2Q3Q4
Amendments to IAS 1 IASB deliberations Publish ED IFRS Final date of IFRS subject to deliberations, comments, etc.
Materiality Research Paper to IASB Outcome depending on research
New EDs On going
IAS 1, 7, 8 and FSP research Project plan Research (possible public research paper) Potential 2015 Agenda Consultation proposal
Existing standards Project plan Research Potential 2015 Agenda Consultation proposal

Paper 8B: Disclosure Initiative: Amendments to IAS 1

Paper 8B sets out some of the proposed amendments to IAS 1 that are seeking to address concerns raised during the agenda consultation.

Materiality and aggregation—paragraphs 29-31 of IAS 1

The staff noted that there is a perceived conflict between the materiality requirements in IAS 1 and the way in which disclosure requirements are worded. The staff recommend that additional guidance be provided to the materiality section of IAS 1 to clarify that the concept of materiality should be applied to the specific disclosure requirements set in a Standard or Interpretation. The staff proposed the following wording:

31 An entity need not provide a specific disclosure required by an IFRS in the financial statements, including the notes to the financial statements, if the information is not material.

31A When an entity determines that a matter addressed by a Standard or Interpretation is material, it need not provide a specific disclosure that is set forth in that Standard or Interpretation if the information that would be provided by that specific disclosure is not material.

Question 1: Does the IASB agree with the proposed amendments to paragraph 31 of IAS 1 and the insertion of a new paragraph 31A to IAS 1 for the reasons stated in paragraphs 12-27 [of paper 8B] above?

Several Board members were concerned with the wording in paragraph 31A, in regards to while a piece of disclosure may not be material on its own, disclosures must be looked at collectively. The staff responded that they did not bring into the paper the discussion of collective assessment of materiality as the scope was too great for the current project, but may reconsider this.

Several Board members raised the question of whether the materiality of disclosure was to be considered as part of the whole financial statements or to just a separate note or both. For example, for FI disclosures, should this be assessed as material to the FI note or to the financial statements as a whole. The staff responded that clarification on this issue would be included in a redraft.

The Board tentatively agreed to the staff recommendation subject to incorporation of wording suggestions.

Too much detail can obscure useful information

The staff do not recommend including a requirement for immaterial information not to be disclosed as they do not believe such a requirement would be operational. They have suggested the following additional guidance in IAS 1:

30A An entity shall decide, in the light of its circumstances, how much detail it provides to satisfy the information needs of users, how much emphasis it places on different aspects of the requirements and how it aggregates the information. An entity shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of immaterial detail or the aggregation of items that have different characteristics.

Question 2: Does the IASB agree with the proposed amendments to paragraph 30 of IAS 1 for the reasons stated in paragraphs 31-35 [of paper 8B] above?

One Board member preferred that a review be performed of existing standards to make clear what the standard’s objective was, what users want and then guidance on how to apply this in regards to IAS 1 materiality. It was agreed that this scope was too large for what the staff were currently trying to achieve but it should be taken into account in larger scope projects in the future.

The Board tentatively agreed with the staff recommendation.

Information to be presented in the statement of financial position–paragraph 54

The staff recommend that paragraph 54 of IAS 1 be amended to clarify that the line items listed in that paragraph can be disaggregated and should be if it provides relevant information. The staff has proposed the following:

54 As a minimum, the statement of financial position shall include line items that present the following amounts:

(a) …;
(c) intangible assets;
(d) …;
(h)
(i)trade and other receivables;…
(k) trade and other payables;
(l) …;
(r) ….

An amount listed above should be disaggregated if it provides relevant information, and the disaggregated amounts should be presented separately. For example, separate line items for “goodwill” and “other intangible assets” could replace “intangible assets” listed in subparagraph (c) above.

Question 3: Does the IASB agree with the proposed amendment to paragraph 54 of IAS 1 for the reasons stated in paragraphs 36-45 [of paper 8B]? Do you also agree that a similar amendment should be made to paragraph 82 of IAS1?

The Board tentatively agreed with the staff recommendation.

Notes: presentation order—paragraphs 113 and 114 of IAS 1

The staff have recommended that the wording of paragraph 113 and 114 of IAS 1 should be amended to clarify that the order shown in that paragraph is not a requirement but only an example. They have proposed the following wording:

113 An entity shall, as far as practicable, present notes in a systematic manner that enhances either the understandability or the comparability, or both, of its financial statements. An entity shall cross-reference each item in the statements of financial position and in the statement(s) of profit or loss and other comprehensive income, and in the statements of changes in equity and of cash flows to any related information in the notes.

114 An entity could, for example, normally presents notes in the following order, to assist users to understand the financial statements and to compare them with financial statements of other entities:

(a) statement of compliance with IFRSs (see paragraph 16);
(b) summary of significant accounting policies applied (see paragraph 117);
(c) supporting information for items presented in the statements of financial position and in the statement(s) of profit or loss and other comprehensive income, and in the statements of changes in equity and of cash flows, which could be disclosed in the order in which each statement and each line item is presented.

Question 4: Does the IASB agree with the proposed amendments to paragraphs 113 and 114 of IAS 1 for the reasons stated in paragraphs 49-62 [of paper 8B]?

Several Board members did not agree with the wording changes. One Board member noted that as each preparer arranged their notes in a different order, this would make usability difficult. Another Board member stated that they were not convinced that if the wording changes were useful, noting that no user reads all the notes to the financial statements and it would be easier for the user to be able to know exactly where to go to for the information they required.

One Board member suggested leaving the word ‘normally’ in paragraph 114, but make it clear that there are circumstances where this may be different. Another Board member disputed this by noting that they believed that the wording in paragraph 113 ‘enhances either the understandability or the comparability, or both’, made it alright to be able to remove the word ‘normally’ from paragraph 114 as it ensured that preparers could not hide information in irregularly placed disclosures.

One Board member recommended in paragraph 113 to have ‘and/or’ between ‘understandability’ and ‘comparability’. The staff noted the change. The Board member also noted that ‘comparability’ was not defined and could be interpreted as understandability in the financial statements alone, or understandbility when compared to your peers. Another Board member also supported defining the term.

One Board member asked if the wording allowed the entity to order the notes to the financial statements in one way in the first year and then in another way in the next year. That Board member believed that, if this was the case, this was taking a step back in disclosures. The staff clarified that they have the wording ‘in a systematic manner’ in paragraph 113 which should prevent this.

One Board member suggested that, instead of trying to change the wording in paragraphs 113 and 114 beyond what the staff have already proposed, they could include further guidance in the Basis for Conclusions.

The Board tentatively agreed with the staff recommendation subject to drafting changes.

Notes: disclosure of accounting policies—paragraphs 119-121 of IAS 1

The staff have recommended more clarity around the guidance for what a significant accounting policy is. The following wording has been proposed:

120 Each entity considers the nature of its operations and the policies that the users of its financial statements would expect to be disclosed for that type of entity. For example, users would expect an entity subject to income taxes to disclose its accounting policies for income taxes, including those applicable to deferred tax liabilities and assets. When an entity has significant foreign operations or transactions in foreign currencies, users would expect disclosure of accounting policies for the recognition of foreign exchange gains and losses.

Question 5: Does the IASB agree with the proposed amendments to paragraph 120 of IAS 1 for the reasons stated in paragraphs 63-69 [of paper 8B]?

The Board tentatively agreed to the staff recommendation.

Paper 8C: IAS 1 Presentation of financial statements Current/non-current classification of liabilities

In 2010 the IFRS Interpretations Committee (the ‘Interpretations Committee’) received two submissions requesting clarification of the criteria for the classification of a liability as either current or non-current. This topic has been discussed six times by the Interpretations Committee and twice by the IASB since September 2010.

The staff have recommended a general approach to the classification of liabilities based on the arrangements that are in place at the reporting date and linked to the timing of cash outflows.

Question: Do you agree with the staff recommendation to develop a more general approach to the classification of liabilities based on the arrangements that are in place at the reporting date?

If that approach is developed, what preliminary views do you hold on whether:

  1. ‘unconditional’ should be removed with respect to the rights discussed in paragraph 69(d) of the Standard?
  2. settlement should explicitly refer to cash settlement for the purposes of classification?
  3. the amendment should address the entity’s compliance with conditions and covenants contained in the arrangements in place at the reporting date?

The majority of Board members supported a general approach.

One Board member did not support the proposals and did not want to take out the word ‘unconditional’, as they felt the Board was being too generous. The Board member preferred to keep the current wording and then providing a discussion on short term, refinancing and covenants.

Several Board members raised concerns that the staff would need to be careful in relation to wording that related to cash flows, and whether or not to keep it in.

One Board member suggest that they use terminology reflecting ‘compliance’ with covenants as opposed to ‘existence’.

Several Board members felt there was a need to distinguish what was short term and what was long term when distinguishing between rollovers and refinancing, and whether these were with the same lender or a different lender.

Paper 8D: Narrow focus amendments to IAS 1: presentation of items of OCI arising from equity accounted investments

The Interpretations Committee thinks that the structure of paragraph 82A of IAS 1 should be clarified. The Interpretations Committee therefore recommends:

  1. to revise paragraph 82A through an annual improvement to clarify that the requirements of IAS 1 concerning the presentation of items of OCI arising from equity accounted investments shall be presented in aggregate as a single line item, classified by whether those items may or may not be reclassified to profit or loss; and
  2. to revise the Implementation Guidance in IAS 1 to reflect the proposed revision of paragraph 82A.

The IC have proposed the following:

82A The other comprehensive income section shall present line items for amounts of other comprehensive income in the period, classified by nature (including share of the other comprehensive income of associates and joint ventures accounted for using the equity method) and grouped into those that, in accordance with other IFRSs present line items for the amounts for the period of:

(a) items of other comprehensive income (excluding amounts in (b)), classified by nature, grouped into those that, in accordance with other IFRSs:

(a)(i) will not be reclassified subsequently to profit or loss; and

(b)(ii) will be reclassified subsequently to profit or loss when specific conditions are met.; and

(b) share of the other comprehensive income of associates and joint ventures accounted for using the equity method, analysed between portions that:

(i) will not be reclassified subsequently to profit or loss; and

(ii) will be reclassified subsequently to profit or loss when specific conditions are met.

Question: Does the IASB agree with the Interpretation Committee’s recommendation to amend paragraph 82A of IAS 1 and provide consequential amendments to Implementation Guidance to clarify the requirements for the presentation of items of OCI arising from equity accounted investments?

Several Board members questioned if the nature of the OCI source would be more useful. The staff clarified that paragraph 20 of IFRS 12 Disclosure of Interests in Other Entities should capture that.

One Board member requested to clarify whose profit or loss was referred to in 82A. The staff clarified that this was the group’s – the Board subsequently requested this be amended for.

One Board member queried if the amendments were useful. If an entity used equity accounting and ceased doing this, the entity would recycle the amounts anyway. The nature of recycling is different between a) and b), and could confuse the readers. The staff responded that more thought would have to be given to this.

The Board tentatively agreed with the IC’s broad conclusions with proposed suggestions.

Correction list for hyphenation

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