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Primary financial statements

Date recorded:

Plan for redeliberations—Overview (Agenda Paper 21A)

Background

This paper set out the plan for redeliberating the Primary Financial Statements (PFS) project proposals.

Staff analysis

The staff considered the factors in approaching redeliberations, general approaches to redeliberations, approaches to redeliberation by project topics and project timing. The staff considered four main factors in deciding how to approach the redeliberations; these being the project objectives and its focus, the linkages between project topics, timeliness and efficiency. The staff considered which project topics required a staged approach to redeliberations, which topics should be prioritised in redeliberations and which topics could be removed or added to the scope of the project when considering the general approach to redeliberations. The staff set out the proposed approach for redeliberation on the categories in the statement of profit or loss, management performance measures (MPMs), disaggregation and other topics. Lastly, the staff will develop estimated timelines once the Board has completed initial discussions on these topics.

Board discussion

Board members were supportive of the paper as it provides the readers with an indication of the direction of travel. Board members asked the staff to provide more analysis on the benefit of presenting more consistent subtotals and also how the Board can support the practitioners in presenting the new subtotals initially. Some Board members highlighted that the staff should identify the projects which have a degree of interdependency at the outset in order to prioritise the project topics more efficiently. A Board member questioned where and when the staff would be addressing the definition of “main business activities” and whether this would be before or after the discussion of classification of investing or financing activities. The staff have considered deliberating these topics together but agreed to have a separate discussion on the definition of “main business activities” and the classification of investing or financing activities as these are complex issues. Another Board member questioned whether MPMs are substitutes or compliments for subtotals in the proposed Standard as previous Board discussions have concluded that MPMs are compliments to the subtotals and this should be clarified in the paper. 

No decisions were made.

Feedback summary—Statement of cash flows (Agenda Paper 21B)

Background

This paper analysed feedback from comment letters and outreach on the proposals relating to the statement of cash flows set out in the Exposure Draft ED/2019/7 General Presentation and Disclosures.

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.

Board discussion

Board members expressed concerns that the paper focused on full alignment between the statement of cash flows and the statement of profit or loss when this topic was deliberated in previous PFS projects to no avail. In addition, Board members suggested that the staff segregate the scope of this project with work to be performed on future projects (i.e. the review on the statement of cash flows) and proposed not to reopen a fundamental debate on achieving alignment between the statements based on the comments received. A Board member asked whether the staff could explore the possibility of presenting, in the investing section, in the statement of cash flows to require disaggregation between investing activities which relate to operations and investing activities which relate to other activities. Lastly, Board members asked whether the staff could perform further cost benefit analysis for banks as some users have expressed concerns on incurring additional costs.

No decisions were made.

Feedback summary—Other topics (Agenda Paper 21C)

Background

This paper analysed 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.

Board discussion

Board members stated that, with the exception of equity accounting, the work has been captured on the other topics through the agenda consultation and consulting with stakeholders. A Board member expressed concern that the proposal may require a systems change and that the fieldwork may be a good indicator of what is the reasonable time for implementation. Board members asked the staff to clarify the consequences arising from the introduction of PFS and how this interacts with the existing requirements in IAS 34. Lastly, Board members cautioned the staff about creating exceptions from the new Standard for non-publicly accountable entities and investment funds.

No decisions were made.

Feedback summary—Users of financial statements (Agenda Paper 21D)

Background

This paper analysed 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.

Board discussion

Board members supported the proposal but asked for feedback on whether there was consensus from users on the definition of unusual items and whether the staff could collate all comments on digital accounting (e.g. database, taxonomy and iXBRL) in order to assess how digital accounting may be affected by this proposal. The staff said there was diversity in views from the users on the definition of unusual. There is a group of users that would prefer to have more items being included as unusual items including the ability to be able to choose what is defined as unusual. Another group of users support setting a higher threshold for the definition of unusual items. The staff also confirmed that early modelling of the proposal is being explored. Board members asked the staff to consider the relationship between MPMs and definition of unusual items.

No decisions were made.

Feedback summary—Literature review (Agenda Paper 21E)

Background

This literature review summarised the evidence from academic papers on topics relevant to the questions in the ED resulting from the PFS project.

Board discussion

A Board member expressed concerns that the studies of European entities reporting expenses predominantly by nature may not be aligned with their expectations. Board members expected to see more European entities applying a mixture of reporting expenses by function and by nature. The staff clarified that the literature focuses on European reporting and would therefore likely differ from samples from other jurisdictions (e.g. Japan). Board members highlighted that the literature only considered income and expenses from operating and financing activities and did not consider investment income and expenses. In addition, the literature stated that the investors distinguish integral associates and joint ventures from non-integral associates and joint ventures based on expected synergies. Board members questioned what criteria should be used for the expected level of synergies and whether these criteria align to the proposal in the ED. The staff clarified that investment income is not included in this analysis due to lack of literature around categorising investment income and expenses. Furthermore, the studies included in the paper do not look at the income statement in its entirety and the studies mainly looked at distinguishing income and expense between operating and financing categories conceptually and not empirically. The staff further clarified the studies on the expected synergies from integral associates and joint ventures and non-integral associates and joint ventures do not correspond to the criteria as proposed in the ED.

No decisions were made.

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