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IAS 34 — Condensed statement of cash flows

Date recorded:

The paper addresses the request received by the IFRS Interpretations Committee in October 2013, from the European Securities and Markets Authority (ESMA) that seeks clarification on the application of the requirements regarding the presentation and content of the condensed statement of cash flows in the interim financial statements according to IAS 34 Interim Financial Reporting.

ESMA observes that there are divergent views on the application of the requirements in paragraph 10 of IAS 34 regarding presentation and content of the condensed statement of cash flows in the interim financial statements.  It refers in particular to the guidance in paragraph 10 of IAS 34, which states that (emphasis added):

If an entity publishes a set of condensed financial statements in its interim financial report, those condensed statements shall include, at a minimum, each of the headings and subtotals that were included in its most recent annual financial statements and the selected explanatory notes as required by this Standard. Additional line items or notes shall be included if their omission would make the condensed interim financial statements misleading.

Outreach was performed with the International Forum of Accounting Standard-Setters (IFASS) and securities regulators on this topic in order to determine how widespread this issue is and to what extent diversity in practice exists.

On the basis of their assessment of the Interpretations Committee’s agenda criteria, and also on their analysis in this paper, the staff thinks that their proposed amendment meets the criteria for inclusion in the Annual Improvements cycle for 2013-2015.

The staff recommends including additional guidance in paragraph 10 of IAS 34 to clarify the content and minimum requirements of an interim financial report. In this respect they recommend stating in this paragraph that condensed financial statements should include:

  1. information reflecting the changes in financial position and performance of the entity since the latest annual reporting period; and
  2. additional line items or notes to prevent the information in a financial report from being misleading

Questions to the Interpretations Committee

  1. Does the Interpretations Committee agree with the analysis in this paper and the conclusion that an entity should present a detailed structure of the condensed statement of cash flows?
  2. Does the Interpretations Committee agree with the staff’s recommendation to amend paragraph 10 of IAS 34 as shown in Appendix A of this paper?

The majority of members contributed to the discussion.

The general consensus was that the members do not believe an amendment to IAS 34 is necessary.  The outreach performed by the staff indicates very little diversity in practice and IAS 34 as written does not provide the option of presenting only subtotals, unless taking that approach would not be misleading.  The principle in the Standard is that an entity should provide the information required for the financial statements not to be misleading.  If it is not misleading to just present three line items, then this is not a problem.  The Standard as it exists is very much encouraging additional information, while not requiring it.

As noted by the results of the outreach performed by the staff, in the great majority of cases entities are applying judgement resulting in additional line items being presented.

The members agreed that creating a rule in the Standard is not necessary, and rather than having a proposed amendment to IAS 34, the agenda decision could re-emphasise the principles that exist in the Standard. 

The regulator present at the meeting agreed that only providing three lines is not frequently seen in practice and that the objective is not to create a rule, and noted that maybe a rejection notice is enough if it is written well.

The Chairman, in summing up the discussion, noted that there was not sufficient support among the members for the proposed staff amendment.  However, there was support for an agenda notice that includes wording to the effect that ‘yes – the principle in the Standard is condensed, but an entity needs to ensure that condensation in and of itself is not misleading’.  The Chairman noted that this is not something to be dealt with quickly, and it should be brought to the next meeting as an agenda notice because of the importance to the regulators and the importance of the issue.  This also gives the staff a chance to discuss with ESMA and IOSCO.

This proposal was accepted by all members of the Committee.

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