Performance Reporting

Date recorded:


Discussion focussed on the key determinants of the format of the performance statement. Two questions were raised for discussion:

1. Should the performance statement make a distinction between 'operating' (or 'business') and 'financing' (or 'treasury') and, if so, what should be the conceptual basis for this distinction and what are the implications for financial instruments?

2. In what ways should value changes in financial instruments be disaggregated in the performance statement? This includes consideration of different valuation methods (historical cost and fair value), different instruments (such as bonds vs. derivatives), different causes of value change (such as interest rates and currency exchange rates), and different designated uses of the instruments (such as held for trading vs. held to maturity).

Distinction between operating and financing:

The Board had previously agreed that a distinction should be made, and the performance statement will show the appropriate sub-totals. The discussion therefore focused on characteristics for distinguishing the items that should be included in each category. The Board was presented with two methods of making the distinction. The first approach was based upon the nature of the activity in which any given asset or liability is employed. The second approach was based on whether the intrinsic nature of the asset or liability is financial (nature of the item).

Some Board members felt that the nature-of-the-item approach was more simple and made comparison of entities easier. However, the nature-of- the-activity approach was favoured by a majority of the Board members on grounds that it is more representative of the way the assets and liabilities are managed.

The Board then considered what should be included in the definition of 'debt' for the purpose of making an operating vs. financing split. Three alternatives were proposed:

  • All interest bearing capital instruments and debt excluding cash and liquid investments.
  • All interest bearing capital instruments and debt including cash and liquid investments.
  • All liabilities.

Discussion focused on whether pension obligations, provisions, and bank depositor liabilities are operating or financing. The definitions of debt and, hence, financing transactions were not resolved. It was agreed that a definition would be proposed and discussed at the next meeting.

The Board also felt that it would be helpful to define working capital. This is particularly important with reference to financial institutions to determine the distinction between operating and financing transactions. The proposed definition should pay particular attention to the more contentious areas such as derivatives.

Disaggregation in the performance statement

The Board discussed the proposal that the performance statement is presented as three columns:

Current Period

Revisions to Expectations about Future Periods


The Board discussed an illustration of this split concerning income components for a fixed interest bond held at fair value. In this example the interest on the bond was shown in column 1 and the change in fair value in column 2. This is meant to demonstrate the split between income and capital.

This led to a discussion about expected and unexpected changes in fair value (volatility). The Board concluded that reported value changes should not be divided into expected and unexpected. It was noted that the determination of the split would be particularly difficult in the case of fixed assets. It was suggested that depreciation would be shown in column 1, whereas impairment would be in column 2. The justification for this is that depreciation represents the consumption of the assets during the period whereas an impairment represents a decrease in the expected future benefits. The distinction may be blurred, however, if the impairment recognition was caused by an incorrect prior estimate of the useful economic life.

The Board did not reach decisions and, in fact, suggested that the proposed three column headings will be reconsidered at a future meeting.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.