ICAEW responds to the IASB’s Exposure Draft proposing amendments to IAS 7

  • ICAEW (Institute of Chartered Accountants in England and Wales) (lt green) Image

23 Apr, 2015

The Institute of Chartered Accountants in England and Wales (ICAEW) has issued its comment letter on the IASB exposure draft (ED) proposing amendments that would improve disclosure in financial statements on an entity’s financing activities and liquidity.

On 18 December 2014, the IASB issued ED/2014/6 Disclosure Initiative (Proposed amendments to IAS 7). The main objectives of the proposal are to (1) improved information about an entity's financing activities, excluding equity items and (2) Improved disclosures about the liquidity of an entity.
In its comment letter, the ICAEW “supports the IASB’s decision to improve the information provided to users of financial statements on an entity’s debt and liquidity” and indicate that the proposed new disclosures, particularly the ‘financing activities reconciliation’ are a “step in the right direction” towards meeting investors’ needs in this area.  However, the ICAEW does express some concerns, particularly in relation to the ‘financing activities’ reconciliation, indicating that it considers that it is “too prescriptive and may not ultimately provide investors with the information they need”.  In particular, the ICAEW is concerned that the proposed reconciliation, as defined “will not capture all the relevant components of an entity’s debt”.  The ICAEW also proposes that an entity should have “greater flexibility to define (and disclose) what it considers ‘net debt’ and provide a reconciliation on that basis” as it believes that “this would provide a more accurate and complete analysis of an entity’s net debt position and therefore potentially be of more use to investors”.  A number of other concerns are expressed on the ‘financing activities’ reconciliation in the full comment letter as well as comments on liquidity proposed in paragraph 50A.

On a wider note, whilst the ICAEW are supportive of these proposals and the approach taken by the IASB under the Disclosure Initiative to address disclosure issues in a timely manner rather than waiting on the finalisation of the planned disclosure framework, they encourage the IASB to focus on finalising the disclosure framework and revised conceptual framework.  Once finalised, the ICAEW comments that these frameworks will “be critical to the longer term aim of ensuring that disclosures are only introduced when they are needed”.

The full comment letter is available on the ICAEW website.

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