Agenda paper 11D — Disclosure Initiative — Amendments to IAS 7 — Reconciliation of liabilities arising from financing activities

The project manager provided an overview of the agenda paper which covered the proposed amendments of IAS 7 to require a reconciliation of liabilities arising from financing activities. He said that there was general support for the amendment although some concerns had been expressed about its applicability and relevance to financial institutions. The staff recommended proceeding with the amendments while adding a disclosure objective to help users identify how best to provide the required information. He also said that in relation to financial institutions the staff did not propose proving a scope exemption; rather the staff recommended clarifying in the standard that an entity had flexibility to determine what information was needed, and to what extent, to meet the disclosure objective.  He then opened the discussion to the Board.

There was general support for the staff recommendation. However, some Board members expressed concern in the following areas:

1. There was concern as regards the objective the reconciliation as stated in the agenda paper because it implied that the reconciliation itself was the objective instead of explaining whether the objective was to help users understand an entity’s liquidity, funding etc.
2. There was concern that paragraph 17A of the agenda paper discussed “net debt” while the proposed amendment was about debt reconciliation. One Board member asked whether if an entity wanted also to provide a net debt reconciliation, if that would be acceptable. The Project manager confirmed that it was acceptable and that this was covered by the objective of the proposed amendment and it would be made clear in the basis of conclusions.
3. There was concerned expressed by one Board member that the amendments could add more confusion with the cash flow statement. He said that there would be more discretion and accordingly, less comparability between companies.  The Project manager responded that the feedback from investors was positive; she also said that companies would provide the minimum information required and in that aspect the information would be comparable.
4. There was concern that there was a need for more uniformity.

The support expressed by some Board members was based on:

1. The amendments were consistent with the principles of disclosures initiative
2. The amendment provided a sensible way to communicate what was relevant, and still helped to provide comparability as much as possible

The Vice Chairman then called to vote on question 1 which required the Board to confirm whether they agreed to add a paragraph in IAS 7 that would clarify that an entity could extend the reconciliation to include items that are not financing in the cash flow statement but which the entity considers to be sources of finance.  11 out of 13 members approved the staff recommendation.

The Project manager then moved the discussion to the requirements for financial institutions (questions 2 and 3 of the agenda paper).

There was general support for the staff recommendation for not providing an explicit scope exception to financial institutions. The following concerns were raised:

1. It would be difficult to conceptualise the definition of what a financial institution was; the wording as to how entities could explain that they were meeting the disclosure objective would be critical
2. Some Board members questioned the conclusion of the staff that the reconciliation was less relevant for financial institutions .  For example one Board member said that financial institutions already provide roll-forward information for pension liabilities; he said that it would be important to think fundamentally how financial institutions report, he said that the proposed debt reconciliation would only provide partial information from what was needed from financial institutions  (other Board members agreed with his concern)
3. there were concerns in relation to how materiality would apply if, for example, the information was not considered useful (as suggested by the European Banking association) and accordingly, it should not be provided on the basis that it was not material. The Project manager responded that IAS 1 already provided guidance to assess materiality to which one Board member responded that it would be very difficult to enforce
4. there were concerns that the fundamental problem was about the cash flow statement and a narrow scope amendment would not solve the problem, on the contrary, one Board member indicated that this project was not related to the cash flow statement, the only connection was that the items to be disclosed in the reconciliation were defined in the cash flow statement

The Vice Chairman called to vote and 10 Board members approved questions 2 and 3 related to the staff recommendations for financial institutions.  As a consequence, there will not be an exception for financial institutions.  However, the disclosure requirement will be flexible, allowing financial institutions to adapt their disclosures to meet the objective.

The Project manager introduced question 4 of the agenda paper which discussed about the staff analysis on the cost/benefit of the proposed amendment.

No significant comments were made. The Vice Chairman called to vote and 11 Board members approved the staff analysis.

The Project manager introduced question 5 of the agenda paper which discussed the staff proposal PM to add an illustrative example in IAS 7.

No comments were made.

The Project manager then discussed question 6 of the agenda paper which related to the IFRS taxonomy – anticipated common practice. He said that the staff recommended not including additional, anticipated common practice elements in the IFRS Taxonomy for the amendments to IAS 7.

The Vice Chairman said that based on the staff analysis it would be more convenient in future project to have the taxonomy discussion separately.

No other significant comment was made. The Vice Chairman then called to vote and 10 Board members agreed with the staff recommendation.

Agenda paper 11E — Disclosure Initiative — IAS 7 amendments — Cash restrictions (disincentives)

The Project manager introduced the agenda paper. He said that the agenda paper analysed the feedback on the proposal about cash restrictions. He said that the feedback received raised concerns about the proposed amendments.  He said that the staff recommended not finalising the amendments and conducting further research that would analyse liquidity more broadly. He then opened the discussion to the Board.

There were mixed views from the Board members regarding the staff recommendations. Some Board members agreed because they indicated that research was key to establish not only why the issue was important but also how best to provide the information.  On the other hand, some Board members disagreed with the staff recommendation and indicated the following:

1. this project should go ahead because it could not be separated from the proposed amendments to IAS 7 that would require a reconciliation of financial liabilities; because providing a reconciliation without discussing the items included in the reconciliation would not be useful;
2. there was concern that further research would not provide useful information because the staff had already obtained feedback from preparers, investors etc and the staff should continue with the analysis;

During the discussion the following suggestions were raised:

1. One Board member suggested to add a table about cash split by currency; the Project manager responded that some investors were asking for this information and some companies were already disclosing it; however, some Board members indicated that information about currencies that were readily exchangeable would not provide useful information;
2. One Board member suggested improving paragraph 48 of IAS 7, because he acknowledged that it could be read in a very restricted way, he said that application guidance could be added, for example it could discuss about freely available cash without additional cost. Some Board members agreed with this proposal, while one Board member expressed concern that it was not a kind of amendment that could be done quickly, careful consideration would be needed to make it operational and avoid further interpretation question.

The Vice Chairman called to vote and the staff recommendation was not approved (only 6 Board members voted in favour). After further discussion around the concerns indicated above, the Vice Chairman called another vote on two separate questions:

1. whether the proposed amendments to IAS 7 regarding reconciliation of financial liabilities should go ahead separately from the analysis of cash restrictions– the proposal was approved by 10 Board members; and
2. whether the staff should continue with their analysis (including analysis the suggestions raised by the Board) of cash restrictions and discussed the issue again in a future meeting – the proposal was approved by 11 Board members.