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Financial Activities: Disclosure and Presentation

Date recorded:

This project is to develop a Standard requiring appropriate presentation and disclosures in the financial statements of entities that carry out deposit-taking, lending, or securities business activities. The Standard would replace IAS 30.

Scope of the project

Three possible approaches to scope have been identified:

1. A pure activity-based approach (which is the approach the IASB agreed upon) extending to all entities that carry out deposit-taking, lending, or securities business activities;

2. A pure entity-based approach (which is the approach taken in IAS 30) limited to certain defined types of entities, such as entities regulated and supervised by banks; and

3. A mixed approach (which was the approach recommended by IASB's Advisory Committee) under which the scope is defined based on both entity and activity-related criteria, such as quantitative tests relating to an entity's or business segment's involvement in deposit-taking, lending, and securities business activities.

The IASB concluded that the scope should be activity based.

Presentation

The IASB discussed whether the eventual standard should specify balance sheet and income statement formats. Concern was expressed about which presentation would be required by an entity with, say, 40% of its activities within the scope of this project and 60% manufacturing.

The IASB concluded that it did not wish to specify mandatory performance statement formats, although the standard will require that certain components are included in the performance statements, including the cash flow statement. Examples of suggested performance statement presentation will be given.

Disclosure

The Board discussed whether the disclosures, which will be narrative as well as numerical, should be within the financial statements or outside them, such as in an 'MD&A'. The Board expressed a preference for the information to be in the financial statements.

With respect to disclosures on risk it was suggested that entities would disclose the impact of a risk on the activity within the scope of the standard, rather than disclosing the impact of the risk on the entity. For example, interest rate risk is likely to affect not only an entity's activities that fall within the scope of the standard but also its other activities; it is only the impact on the activities within the scope of the standard that would have to be given.

The standard will require disclosure of regulatory constraints (from the lead regulator), such as capital adequacy.

It was suggested that the disclosures proposed should be as specific as possible and should include disclosures on what happened in a period as well as what is expected to happen going forward.

It was noted that the disclosures proposed under this project would be monitored against IAS 32 to ensure that the two tied together.

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