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Disclosure initiative

Date recorded:

Agenda Paper 11C - Education session – Principles of Disclosures Project

The project manager introduced the agenda paper. She said that the purpose of the paper was to:

(i) provide a list of potential chapters in the Discussion Paper (DP);

(ii) provide an overview of disclosure issues discussed as part of the Principles of Disclosure project and the IASB’s tentative views that would be included in the DP; and

(iii) obtain the IASB’s view on whether there were any other issues that should be included in the DP.

The project manager said that it was necessary to replace IAS 1 because IAS 1 commingled general guidance with detailed requirements; some wording in IAS 1 appeared to be ambiguous as to whether it applied to the full set of financial statements or only to information in the primary financial statements and linkage between general objectives and specific requirements. She said that the replacement of IAS 1 was proposed to be split between (i) a general disclosure standard which would include: purpose of financial statements; content and identification of financial statements; general disclosure principles and accounting policy disclosure guidance and (ii) the remaining sections of IAS 1,which currently include specific guidance for primary financial statements  would be discussed as part of the performance reporting project;  and the specific notes disclosures requirements already included in IAS 1 (i.e. capital and puttable instruments) would be analysed at a future stage.

There were concerns raised by several Board members regarding the lack of discussion around the notion of presentation vs disclosure. The comments were focused on the need to provide more clarity because the Board members believed there was diversity in practice. The Chairman said that it would be important to get as close to common practice as possible. He mentioned that the common understanding was that disclosure related to the notes but he acknowledged that it was not understood consistently by preparers. Some Board members suggested that the Board should be more disciplined when drafting standards, making clearer whether they were requesting presentation or disclosure in the face and/ or in the notes. The Project manager clarified that the Board had already agreed that the location would have to be specified whenever the terms were used by the Board and that the Board had already discussed that the terms were not always used consistently. She said that the term “present” was used to indicate a line item in the financial statements although other preparers considered it indicative of how to present something; she acknowledged that IAS 1 could be read in that way. She said that the tentative view already taken by the Board was not to define the terms, but that the question could still be asked in the Discussion Paper. One Board member disagreed with including the question in the Discussion Paper because she said it was the role of the Board to make the standards clearer.

One Board member expressed concern about adding a new standard with general disclosure requirements on top of IAS 1; he also said that the new standard would not achieve the objective of cleaning up IAS 1. The Project manager responded that the ideal outcome would be to have a general disclosure standard and then another standard that would deal with presentation in the primary statements (including the requirements of IAS 7, IAS 8 and the relevant parts of IAS 1), with other specific disclosure requirements currently in IAS 1 going to other specific standards.

One Board member asked about the scope of the project and whether management commentary was included. The project manager responded that there was a section related to cross-referencing and non-IFRS information. The Board member said that Management Commentary was not IFRS information. The Project manager responded that it would depend on how the entity designated the information; she said that if it was relevant an entity could say that it was part of their financial statements. Another Board member disagreed because he said that there were no requirements that Management Commentary should include amounts measured under IFRS and that consequently, it was not IFRS information.

There was a concern discussed by the Board as to how the IASB could help with the expectation to make financial statements shorter and more concise. For example, one Board member said that companies should not copy/paste standards as their accounting policies; he said that the accounting policies should be contextualised to the company and should provide amounts and references to the specific notes or other information that provided more detail.

The project manager then moved to the topic of non-IFRS information. She said that there was confusion regarding what the term ‘non-IFRS’ meant and whether such information should be allowed in the financial statements. She said that the tentative view was that it should not be prohibited if it was fairly presented but that some guidance should be provided. There was general agreement by the Board that as long as the information was reconciled it should not be prohibited.  

In relation to cross referencing, one Board member asked whether the staff had discussed the topic with the IAASB. The project manager responded that the IAASB was supportive of the proposal to allow cross referencing. There were concerns raised by the Board as to a potential conflict between current IFRS requirements that the information needed to be understandable and the fact that if the information was presented outside the financial statements then the financial statements could not be understood on a stand-alone basis. The project manager responded that the staff was proposing not to overuse cross referencing but that the topic required more discussion.

In relation to accounting policies, there were concerns raised by the Board as to why they would discuss permitting cross referencing for immaterial accounting policies.

No decisions were made.

Agenda Paper 11F Comparability of disclosures

The project manager introduced the agenda paper. She said that the agenda paper discussed whether a general disclosure Standard (replacement of IAS 1) should include additional guidance on the concept of comparability. The purpose of any additional guidance would be to help entities to better understand and apply the concept of comparability to ‘enhance’ the usefulness of information in general purpose financial statements.

There were general concerns expressed by the Board that the staff proposal was not clear. The Chairman said that he disagreed that it was necessary to provide guidance on comparability. He also said that the wording of the proposal was not clear.  One Board member pointed out that by providing more guidance on comparability it would reduce flexibility. One Board member suggested asking a specific question on this topic in the Discussion Paper.  Another Board member said that the Board should acknowledge in the Discussion Paper that comparability was good for investors and that preparers should take into account the needs of the market; however, the Board could not provide more guidance because it would be restrictive. He said that many preparers presented information such as KPIs with the aim of providing comparable information across entities.  One Board member said that even though information might not be directly comparable (for example the presentation of interest costs under a defined benefit pension), if the information was disclosed in the notes, investors could still find the information needed for comparisons.

There was some discussion regarding the concept of consistency across an entity over time vs comparability with other entities. One Board member said that he believed that it was not enough to have the discussion only in the Conceptual Framework; he said that it should be translated into action in the accounting standards. The Chairman pointed out that the comparability issue was primarily directed at the Board because preparers primarily looked at the standards. Other Board members agreed with his view and that it should be further explored in relation to the role of the Board in achieving comparability.

The Chairman concluded that there was no support for the staff proposal and the majority of the Board voted against it. The Senior Director of Technical Activities pointed out that the staff would include in the Discussion Paper that the Board discussed the issue of comparability but decided that it was not appropriate to provide further guidance.

Agenda paper 11G - Principles of Disclosure - Non-IFRS information

The staff introduced the agenda paper. He said that the purpose of the paper was to gather the IASB’s tentative views on: (a) the definition of an alternative performance measure (APM); (b) whether to prohibit the disclosure of APMs in the primary financial statements; and (c) what the guidance on the disclosure of non-recurring, unusual or infrequent items should be based on. He said that the paper was a follow-up based on the comments provided by the Board in the meeting held in February 2015.  

He said that in that meeting it was tentatively decided that (a) IFRS should include additional guidance on the depiction of non-recurring, unusual or infrequently occurring items in the statement of comprehensive income; (b) the presentation of EBIT and EBITDA in the statement of profit or loss complied with IFRS, provided that the statement was presented ‘by nature’ and such subtotals were in accordance with paragraphs 85–85B of IAS 1 Presentation of Financial Statements; and (c)  IFRS should not prohibit the disclosure of APMs in the notes to financial statements. He said that the Board had asked the staff to conduct further research on the definition of an APM and presentation of APMs on the face of the primary financial statements. He said that the staff recommendation was to include a definition of APMs. The staff was recommending that a financial performance measure would be considered as an alternative to a performance measure defined or specified in IFRS when (a) it would be unclear how it reconciles or relates to a performance measure that was defined or specified in IFRS; or (b) it would obscure or could be easily confused with performance measures that were defined or specified in IFRS. Finally, the staff was proposing that APMs should not be permitted or disclosed in the financial statements.

The staff was also proposing developing further guidance on non-recurring, infrequent and unusual items. The staff proposal was:

(i) to develop guidance on when and how transactions or events should be presented in the primary financial statements as ‘unusual’ or ‘infrequently occurring’, with further details in the notes. Such an approach to standardisation would be similar to the FASB approach. The guidance could also clarify the prohibition on the use of specific terms such as ‘recurring’ or ‘non-recurring’;

(ii) to develop specific guidance to the effect that an entity must not label any item in the primary financial statements by referring to its frequency of occurrence or whether or not it was unusual. The entity would be allowed to provide such information only in the notes; and

(iii) that guidance on the statement of profit or loss and other comprehensive income could be developed as part of a separate Performance Reporting project.

There was general concern expressed by the Board in relation to focusing on defining terms instead of focusing on the core issue which was discussing performance measures in general. There was general disagreement with the definitions proposed by the staff although there was support for the guidelines provided in paragraph 53 of the agenda paper. For example there was disagreement in the message that performance measures were good but alternative performance measures were bad. Some Board members said that the information currently presented was not actually “alternative” to IFRS, most information was actually supplemental. On the other hand, there was general agreement that if the information could not be reconciled then it should not be allowed in the financial statements. There was also general agreement that the material discussed in the agenda paper was still helpful and should be captured in the Discussion Paper. Some Board members pointed out that the guidance suggested in paragraph 53 of the agenda paper provided useful material and that the Board should focus on that instead of focusing on the definitions.

One Board member pointed out that IFRS 8 required entities to present information as used by management; however, this information would not meet the test required in the agenda paper because the information on each segment did not reconcile with any IFRS information (although the information at a consolidated level did reconcile).

One Board member also pointed out that some jurisdictions require specific alternative performance measures to be presented in the financial statements.

There was extensive discussion regarding whether information provided outside the financial statements which would be considered relevant, should also be included in the financial statements. One Board member suggested that if an entity presented alternative information in its external information (for example in a press release), then this information should be required to be included in the financial statements. One Board member pointed out that IFRS currently required disclosure of information relevant to understand the financial statements, while another Board member responded that it was not generally interpreted in the same way. One Board member pointed out the guidance suggested by the staff in paragraph 53 b)v), which stated that the additional information should not be displayed with more prominence than the subtotals and totals required in IFRS for the relevant primary statement, would be contradictory with the concept of presenting relevant information discussed by other Board members. On the other hand, one Board member expressed disagreement with expanding current requirements to require information presented on a press release to be included in the financial statements because he said that it was the role of regulators. Other members agreed with his assessment.  

One Board member pointed out that it was difficult to continue discussion before having a common understanding of the concepts; he suggested the staff provide examples of how entities are currently using APMs because the Board had different views. The Chairman pointed out that the Board were not trying to create definitions, but rather find some common understanding of what was appropriate and what was not. He said that there was agreement on the principles as suggested in the paper. The project manager pointed out that the main action would be to remove the terminology issue and focus on the disclosure of performance measures and how entities could achieve fair presentation (as presented in agenda paper paragraph 53). There was general agreement with this view and that the staff should proceed on this approach.

The staff then presented the discussion included in paragraph 54 of the agenda paper regarding the presentation of non-recurring, unusual or infrequently occurring items. He said that the staff was proposing option a), which was to develop guidance on when and how transactions or events should be presented in the primary financial statements as ‘unusual’ or ‘infrequently occurring’, with further details in the notes. Such an approach to standardisation would be similar to the FASB approach. The guidance could also clarify the prohibition on the use of specific terms such as ‘recurring’ or ‘non-recurring’. There was general support for the staff recommendation and no comments were raised.

Agenda paper – 11D and 1E – IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors —restatement of comparatives for mandatory changes in accounting policies

The project manager introduced the agenda paper. She said that the agenda paper discussed whether the current requirement in IAS 8 to restate all comparative information should be retained as part of the retrospective application requirement for a change in accounting policy upon initial application of an IFRS (‘mandatory changes’) and whether the IASB wanted to consider this issue further. She said that currently nearly half of the mandatory changes did not require the restatement of all comparative information in financial statements as currently required by IAS 1 and IAS 8. She said that the reasons for transitional provisions not requiring restatement of all comparative information were cost and effort for preparers and the use of hindsight for assumptions and estimates or a combination of both those items.

The Chairman was concerned as to whether there was any issue that needed to be fixed. Several Board members agreed with his view. One Board member said that the Board needed to improve its internal process to make transitional requirements clearer by developing internal guidance for drafting but she did not believe that amendments to IAS 8 were necessary. There was general agreement with her assessment. Another Board member also suggested that the Board needed to improve its decision making process regarding transitions. The Senior Director of Technical Activities said that he agreed with those suggestions because in his view the requirements for retrospective and prospective application were being used inconsistently in transitional requirements.

The Chairman concluded that there was support for leaving IAS 8 unaltered.

Agenda paper 11A and 11B- Proposed amendments to IAS 7: feedback summary

The project manager introduced the agenda paper. He said that the agenda paper contained the summary of feedback received on the IAS 7 ED. He said that there was strong support for the proposal. However, there was not support from users because of the burden of having additional disclosure requirements. He said that some respondents raised concerns that the proposals in the ED reflected a piecemeal approach to addressing the request for improvements to disclosure about debt and that these proposals fell short of the original investor request for a ‘Net Debt’ reconciliation. Many of these respondents preferred to have these issues addressed as part of a broader project on the statement of cash flows. In relation to the second proposal on disclosures on cash restrictions, he said that there were several concerns raised on the lack of clarity and potential overlapping of existing disclosure requirements. He then moved to the questions on taxonomy which focused on content and due process. He said that the general view was supportive of the amendments. He said that some respondents did not support the form and content of the proposed IFRS Taxonomy Update. They expressed the view that the Update could be difficult to understand if readers did not possess the necessary technical knowledge. Consequently, it was suggested that the IFRS Taxonomy should be treated as a separate project from the ED.

Agenda paper 11B provided a summary of the staff proposals regarding IAS 7 amendments which were: (a) adding an objective to the disclosure requirement; (b) clarifying in the Standard that flexibility is permitted in the reconciliation; and (c) adding a less simplistic illustrative example to the Standard.

There was general concern expressed by the Board derived from the comments received by the respondents. There were also concerns about the inconsistency of requiring a net debt reconciliation under this project given the Board had already decided not to request a debt reconciliation for leases in the upcoming new leasing standard.  

One Board member said that there was some inconsistency in the staff analysis, because paragraph 20 of the agenda paper was implying that the cost of implementing the additional disclosures requirements would not be significant; while paragraph 35a) of the agenda paper referred to the lease project in which the Board decided not to include a debt reconciliation for cost reasons. The project manager responded that the IAS 7 proposals provided a holistic view on financing activities and whilst there would be a cost of changing systems they would provide more useful information; whereas in the leasing project they were just looking at reconciling a single line item and the cost would outweigh the benefits. One Board member pointed out that the reason that the Board did not request debt reconciliation in the leasing project was because the Board knew that this project (IAS 7 amendments) was in progress. During the discussion it was also clarified that in the debt reconciliation proposed in IAS 7, lease liabilities would be included as part of the company’s ‘debt’.  

There was significant discussion about the concerns raised by banks because they did not support the amendments as they indicated that they did not think the information was useful. Some Board members pointed out that the debt reconciliation was already often presented in the UK although it was not clear whether this was true across all industries (in particular whether banks in the UK were providing this information).  One Board member clarified that the debt reconciliation was required by old UK GAAP and companies were still presenting this information because they found it useful. There was also some discussion regarding the request from banks to be exempted from this requirement and there was common agreement that there should not be exceptions for industries; however, it was pointed out that the issue for banks required more consideration. In relation to this concern, a comment was raised regarding a potential inconsistency between agenda papers 11A and 11B because agenda paper 11A did not provide an exemption from preparing the reconciliation but agenda paper 11B pointed to some flexibility in the definition of the debt reconciliation. One Board member said that the communication should be clearer because agenda paper 11B only provided the option to add further information to what was required in agenda paper 11A.

One Board member suggested that the staff should explore the current situation for banks and how they were presenting their debt and cash flow information. There was general support for this proposal and the project manager indicated that the staff would bring back the topic in July. It was also decided that the IFRS taxonomy questions would be discussed in July.

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