This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

Disclosure initiative – Net debt

Date recorded:

One of the project managers introduced the agenda paper prepared for this session. She said that it was following up on the discussions by the IASB at its October 2013 meeting about net debt and whether any amendments regarding disclosures of net debt should be included as part of the proposed short-term amendments to IAS 1. She said that on the basis of the Board’s discussions the staff had undertaken some research why investors requested this information and how they used it. The CMAC supported the view that used needed this information, but also wanted information on cash. She said that staff had also undertaken a survey on investors that had been geographically balanced regarding the information investors were looking for. The result was that understanding the debt was important for them as well as the movement in debt, but they also wanted information on cash. The paper contained a summary of the reasons why investors wanted the information, being mainly supplementing the statement of cash flows, a reconciliation between the statement of cash flows with the statements of financial position and of profit and loss, improved confidence when predicting future cash flows, and obtaining a better understanding of risks.

The vice chairman asked whether it was only confidence about information that was already there and therefore would only be about verification. The project managers confirmed this and said that it would allow analysts to dig deeper in their analysis.

One Board member said that net debt could be misleading as, for example, the debt could be in one entity in a group while offsetting cash could be in another entity and that this kind of information mattered. Any new metric should make the business more understandable and not merely be a matter of proofing figures already contained in the financial statements. One project manager replied that they were suggesting a debt reconciliation and that preparers could net it as a next step only. She understood that users wanted more information with regard to the geographical location of debt, maturity profile, etc.

The Board member warned that the Board should not create an expectation gap, as reconciliations did not always mean better information. Another Board member agreed with that view. He said it would not be too difficult for an issuer to give this additional information (location, taxation, restrictions, etc.). One project manager said that they wanted to be careful not to require overly long disclosures by giving all the additional information on debt. One Board member said that better information should not be misleading about what the true financial position of the company was.

Another Board member said he was happy with the proposals. He completely agreed that information about restrictions on moving cash around and whether an entity could pay its debt was more important than knowing where the debt was located.

One Board member said that the Board should speedily proceed with the project and hoped that one day there would be a net debt standard which included pensions as financial liabilities.

Another Board member was happy with the focus on the statement of cash flows and the financing category. She said that there was already information in IAS 7 on restricted cash and that this could be improved in course of this project.

One Board member said that this was also discussed in the financial statements presentation project. He said that the necessity of this information was viewed differently in different jurisdictions. Also, he said that there was still uncertainty what 'debt' meant. One project manager replied that there were standardised reports that use 'net debt'. She said that the staff relied on the categories that were already in IAS 7, i.e. using a broad definition of financing.

Another Board member said that this would be a smart way to circumvent the difficulties of defining debt or cash, which would be hard for the IASB. He asked whether the staff thought that the information requests by constituents would be fulfilled by the project. The project managers confirmed that. The Board member continued that with the information all users could calculate all the requested information by themselves.

One Board member asked what kind of information could be provided by the reconciliation of cash flow items. The staff member replied that the balance should be reconciled by the cash movements. She said that she saw the balance sheet as kind of a roll-forward.

Another Board member asked what the staff had seen in practice so far. The project managers said that such reconciliations were used in many jurisdictions, although not always under the headline of 'net debt'.

One Board member said that this topic was often a discussion point between analysts and entities and it should therefore be solved in a good way.

Another Board member said that there were already disclosures about certain kinds of debt like lease payables, pensions, trade payables, etc. He was concerned that there might be duplications. The project manager replied that those disclosures should work together with disclosure requirements coming from the project.

The chairman asked the Board members whether they agreed with the project going ahead. Nobody objected.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.