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Primary financial statements

Date recorded:

Feedback summary – Overview (Agenda Paper 21A)

Background

This paper summarises key messages from feedback received and provides an overview of the comment letters received, fieldwork and other outreach undertaken during the comment period for Exposure Draft ED/2019/7 General Presentation and Disclosures.

Staff analysis

Agenda Papers 21B-21J provide a summary of the feedback received from all respondents on topic covered by the ED. Agenda Paper 21K provides a summary of feedback from users of financial statements and Agenda Paper 21L reviews academic and other literature relevant to the proposals. The staff is not asking the Board to make any decisions but rather they ask for feedback and ask that the Board identify areas which would require further research.

Feedback summary – Subtotals and categories – general model (Agenda Paper 21B)

Background

This paper analyses feedback on the proposed “general model” for the structure of statement of profit or loss, set out in the ED.

Staff analysis

Most respondents agree with the proposals to introduce defined subtotals and categories in the statement of profit or loss. However, some respondents asked for additional guidance, including guidance on the definition of the categories and the term ‘main business activities’. Many respondents expressed concerns about the proposed classification of foreign exchange differences and of fair value gains and losses on derivatives and hedging instruments. In addition, many respondents expressed concerns about the proposed labels for the categories in the statement of profit or loss. Some respondents expressed concerns about defining the operating category as a residual category and the proposed classification of income and expenses from cash and cash equivalents and other investments held as part of treasury activities.

Feedback summary – Subtotals and categories – entities with particular main business activities (Agenda Paper 21C)

Background

The ED proposes requirements for the structure of the statement of profit or loss. This paper analyses feedback on the ED’s requirement for entities with particular main business activities, such as providing financing to customers and investing.

Staff analysis

Most respondents agree with the proposal to classify in the operating category, income and expenses from investments made in the course of an entity’s main business activities and income and expenses from financing activities and income and expenses from cash and cash equivalents if an entity provides financing to customers as a main business activity. However, many respondents asked for additional guidance, including guidance on the terms ‘main business activities’ and ‘in the course of main business activities’. Many respondents disagreed with the proposed accounting policy choice for entities that provide financing to customers as a main business activity and said that the accounting policy choice should be replaced with a practical expedient. 

Feedback summary – Subtotals and categories – integral and non-integral associates and joint ventures (Agenda Paper 21D)

Background

This paper analyses feedback from comment letters and outreach on the proposals relating to integral and non-integral associates and joint ventures set out in the ED.

Staff analysis

Respondents expressed diverse opinions across various aspects of the proposals in the ED. Many respondents did not express an overall view, commenting instead on specific aspects of the proposals. Most respondents highlighted concerns with the proposals including the proposal to identify separately integral associates and joint ventures; the proposed definitions of integral and non-integral associates and joint ventures; and the separate presentation of amounts relating to these investments in the primary financial statements. Overall, there is not much support among stakeholders for the proposals. However, most users agreed with one aspect of the proposal, the exclusion from operating profit of the share of profit or loss from equity-accounted associates and joint ventures.

Feedback summary – Disaggregation – general proposals and minimum line items (Agenda Paper 21E)

Background

This paper analyses feedback from comment letters and outreach on the general proposals relating to disaggregation set out in the ED.

Staff analysis

Many respondents commented on the roles of primary financial statements and notes and most agreed with the proposals. Most respondents commented on the principles of aggregation and disaggregation and the proposals relating to disaggregation and labelling of items described as ‘other’. Many did not express agreement or disagreement and instead commented on the need for additional guidance or clarifications, particularly on the proposal relating to items labelled as ‘other’. Some respondents commented on the requirements for minimum line items and asked for further guidance and clarification.

Feedback summary – Disaggregation – analysis of operating expenses (Agenda Paper 21F)

Background

This paper analyses feedback from comment letters and outreach on the proposals relating to the analysis of operating expenses set out in the ED.

Staff analysis

Most respondents commented on the proposals relating to the presentation of operating expenses in the statement of profit or loss. Many respondents (mainly accountancy bodies and standard-setters) agreed and some (mainly preparers and their representative bodies) disagreed with the proposal to require an entity to select the method of analysis of operating expenses that is most useful. Many respondents (mainly users, accountancy bodies and standard-setters) agreed and many (mainly preparers and their representative bodies along with a few users) disagreed with the proposal to prohibit an entity from mixing the methods of analysis of expenses. Many respondents (mainly users, standard-setters and accountancy bodies) agreed and many (mainly preparers and their representative bodies) disagreed with the proposal to require an entity to disclose an analysis of expenses by nature in the notes if they present analysis of expenses by function.

Feedback summary – Disaggregation – unusual income and expenses (Agenda Paper 21G)

Background

This paper analyses feedback from comment letters and outreach on the proposals relating to unusual items set out in the ED.

Staff analysis

Most respondents who commented on this question, including almost all users of financial statements, agreed with the Board defining unusual items. However, most of these respondents, including some users, did not agree with the Board’s definition of unusual items and made varying suggestions to change it. There was no clear consensus on what an alternative definition should be. Respondents were split evenly on whether or not they agreed with the proposed disclosure in a single note.

Feedback summary – Management performance measures (Agenda Paper 21H)

Background

This paper analyses feedback from comment letters and outreach on the proposals relating to management performance measures set out in the ED.

Staff analysis

Many respondents, including almost all users, agreed with the Board’s proposals to require the disclosure of management performance measures in the notes to the financial statements. However, most respondents raised concerns about the definition of management performance measures, including requiring disclosure of all management performance measures used in ‘public communications’ being too wide in scope and management performance measures do not include measures that would, in their view, equally benefit from being disclosed in the financial statements. Some respondents disagreed with including management performance measures in the financial statements because in their view non-GAAP measures are either outside the scope of financial statements or do not achieve the objective of financial statements in IAS 1 or in the ED. Some respondents also disagreed with including management performance measures in the financial statements because it would increase the costs of preparing financial statements or it may be challenging to audit such measures. A few respondents disagreed with including management performance measures in the financial statements because many of these measures are subjective. Most respondents agreed with the Board’s proposed disclosure requirements including requirement to reconcile management performance measures to the most directly comparable subtotal specified in IFRS Standards. However, there was mixed feedback on the Board’s proposal to require the disclosure of the tax and non-controlling interest effects of reconciling items between the management performance measure and the most directly comparable subtotals specified in IFRS Standards. This was because the respondents believe it would be costly to obtain the information and it is a more onerous disclosure requirement or it is contrary to management performance measures communicating a management view to require the information. Most respondents, including most users, agreed with the Board’s proposal not to define earnings before interest, tax, depreciation and amortisation (EBITDA). However, some respondents, including some users, disagreed saying the Board should define EBITDA because it is a widely used measure that would benefit from a consistent definition.

Feedback summary – Statement of cash flows (Agenda Paper 21I)

Background

This paper analyses feedback from comment letters and outreach on the proposals relating to the statement of cash flows set out in the ED.

Staff analysis

Many respondents did not respond to the proposals but of those respondents that did, many agreed with the proposals. The main concern of those that did not agree was lack of alignment between the statement of cash flows and the statement of profit or loss, which was also raised as a concern by some fieldwork participants. Some respondents requested a comprehensive review of IAS 7.

Feedback summary – Other topics (Agenda Paper 21J)

Background

This paper analyses feedback from comment letters and outreach on the proposals not specifically discussed in questions set out in the ED.

Staff analysis

Most of the comments not responding to the specific question identified additional work respondents would like the Board to undertake, mostly as separate projects. Respondents also provided feedback on proposals relating to other comprehensive income and interim financial reporting as well as comments on the proposed implementation period.

Feedback summary – Users of financial statements (Agenda Paper 21K)

Background

This paper analyses feedback from user comment letters and user outreach meetings on the proposals set out in the ED.

Staff analysis

All users expressed strong general support for the project. Most users expressed their appreciation to the Board for undertaking this project, for example saying that they expect the proposals will significantly enhance the value of financial statements for investors.

Users particularly welcomed the proposals on the structure of the statement of profit or loss, in particular a defined operating subtotal, and on management performance measures because of the enhanced comparability and transparency of financial information they would provide.

Many users asked for the Board to extend the scope of the proposals, in particular in relation to management performance measures, the statement of cash flows, segment reporting and interim reporting.

Feedback summary – Literature review (Agenda Paper 21L)

Background

This literature review summarises the evidence from academic papers on topics relevant to the questions in the ED resulting from the Primary Financial Statements project.

Related Topics

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