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Primary financial statements

Date recorded:

Principles of aggregation and disaggregation and roles of the primary financial statements and the notes (Agenda Paper 21A)

Background

This paper set out the staff’s initial analysis and recommendations on the principles of aggregation and disaggregation and the roles of the primary financial statements and notes proposed in Exposure Draft ED/2019/7 General Presentation and Disclosures.

Staff analysis

In relation to the principles of aggregation and disaggregation, the staff recommended the Board should state more clearly the principle relating to the purpose of disaggregation (i.e. items shall be disaggregated if the resulting disaggregated information is material). Furthermore, the Board should strengthen that principle by emphasising that a single dissimilar (non-shared) characteristic would be sufficient to result in disaggregated information if that information is material and develop guidance on how to use characteristics to identify when to aggregate or disaggregate items. Lastly, the staff asked the Board to confirm that paragraph 29 of IAS 1 will not be reinstated in the new IFRS Standard and to include a reference to understandability in the description of the primary financial statements when considering the role of the primary financial statements and the notes.

Board discussion

The Board agreed with the staff’s recommendation to state more clearly the principles relating to the purpose of disaggregation and to emphasise that a single dissimilar characteristic would be sufficient to result in disaggregated information if that information in material. The Board asked the staff to clarify whether the proposed changes would apply to the primary financial statements or the financial statements as a whole. The staff clarified the changes are intended to apply to the financial statements as a whole. Many Board members believed that the proposal could be framed into positive statements which would be more impactful. In addition, the Board agreed that it would be useful to have more practical guidance on how to use characteristics to identify when to aggregate and disaggregate items.

Some Board members said they agree with the proposal not to reinstate paragraph 29 of IAS 1 because this requirement implies that materiality is a determining criterion for deciding what should be in the primary financial statements and what should be in the notes and this is not the direction of the ED. The ED does not only consider materiality as a factor but also requires the entity to consider other factors such as understandability. Some Board members suggested that it would be helpful to highlight that the removal of paragraph 29 should not result in different outcomes in most instances and the conclusion of the December 2020 IFRS Interpretations Committee meeting on whether liabilities as part of reverse factoring arrangement should be presented separately on the face of the financial statements (which was based on paragraph 29) still remains relevant. Lastly, the Board agreed that the description of the role of primary financial statements should include a reference to understandability and that the staff should consider how the role of primary financial statements affects digital reporting.

Board decision

12 out of 13 Board members supported the staff’s recommendation to state more clearly the principle relating to the purpose of disaggregation and to emphasise that a single dissimilar characteristic would be sufficient to result in disaggregated information if that information is material and to develop guidance on how to use characteristics to identify when to aggregate or disaggregate items. All Board members agreed with the staff’s proposal that paragraph 29 of IAS 1 will not be reinstated and the description of the role of the primary financial statements should include a reference to understandability.

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