Primary financial statements

Date recorded:

Cover paper and summary of feedback and redeliberations (Agenda Paper 21)

In December 2019, the IASB published Exposure Draft ED/2019/7 General Presentation and Disclosures. The comment period ended on 30 September 2020. In this meeting, the IASB continues its redeliberations of the proposals in the ED.

Analysis of operating expenses by nature in the notes (Agenda Paper 21A)


This paper continued the IASB’s discussions on the proposal in paragraph 72 of the ED. That paragraph requires an entity that presents an analysis of operating expenses by function in the statement of profit or loss to disclose, in a single note, an analysis of its total operating expenses by nature.

Staff recommendation

The staff did not make any recommendations or ask the IASB to make any decisions in this paper. The staff analysed a partial matrix approach and is asking for feedback on the proposed scope for future papers on the topic. The paper discussed what a partial matrix disclosure requirement might comprise, and the costs and benefits associated with such an approach compared to the proposal in the ED, based on the feedback received. The staff will bring back a future paper on the issues discussed in this paper in which the staff will ask the IASB to make decisions.

IASB discussion

IASB members agreed with the staff’s analysis that strengthening requirements for disclosure of operating expenses is not critical to meeting the objectives of this project. However, reverting back to the requirements in IAS 1 may result in preparers interpreting this as a confirmation that entities are only required to report totals for depreciation, amortisation, and employee benefits. Some IASB members believed that many companies provide analysis of expenses by nature and therefore it is possible that preparers may adopt the partial matrix 2 approach (i.e. specified functions are fully disaggregated into nature expenses). However, many IASB members agreed that the partial matrix 1 approach (i.e. specified nature expenses are fully disaggregated by function) would result in faster implementation by preparers and provide cost relief to companies. Some IASB members stated that the project should not be constrained to depreciation, amortisation or employee benefits and should consider what information is most helpful to the users of the financial statements. This may be achieved through outlining the overall objective for this requirement. Some IASB members asked whether the staff would prohibit an entity from adopting the partial matrix 2 approach. The staff clarified that this warranted further discussion and agreed that a paper will be presented in the future. The staff have preliminarily stated that they would not want to prohibit preparers from giving more information. Many IASB members asked the staff to include in the Basis for Conclusions (BC) that the partial matrix 1 approach is a practical solution and provides the most balanced approach given the limitations with current accounting systems. Some IASB members see merit in the partial matrix 2 approach for entities in specific industries (e.g. software as a service ‘SaaS’). However, many IASB members agreed that a majority of entities analyse their expenses by function and the partial matrix 1 approach is more aligned to the presentation in the statement of cash flows. IASB members also highlighted that user of financial statements benefit from understanding the interrelationship between line items presented on the statement of comprehensive income and line items presented on the statement of cash flows. Therefore, it is crucial that this connection is not lost from any approaches proposed. Some IASB members still believed that some users would find nature expenses disaggregated by function to be useful and believe that it should be explicitly stated that this is permitted. However, the staff clarified that permitted disclosures are not usually explicitly stated because this may inadvertently signal to preparers that requirements which are not explicitly stated are not permitted. The IASB member asked the staff to clarify this in the BC. Some IASB members asked the staff to consider any implications on digital reporting if a particular matrix was to be adopted. The IASB members also recommended the staff include examples illustrating the full matrix approach.

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