On Wednesday 18 September, the IASB held an all-day meeting with the US Financial Accounting Standards Board at FASB's offices in Norwalk, Connecticut, USA. The joint discussions were intended to be informational, and neither Board made any decisions at the meeting.

The FASB project manager summarised the status of the FASB project on reporting financial performance and identified areas of commonality and of difference with the tentative conclusions of IASB:

• FASB supports a single performance statement, as does IASB.
• FASB agrees that expenses should be split by function (cost of sales, selling, administrative, etc.) rather than by nature (salaries, depreciation, etc.), as does IASB.
• FASB has considered IASB's Principle 3 by which the performance statement would split current period items and remeasurements of items recognised in prior periods. While, tentatively, FASB "cannot go with IASB Principle 3," FASB intends to use Principle 3 as the basis for its future discussions of presentation on the face of the performance statement. IASB's Principle 3 states:

  Income and expenses resulting from the remeasurement of an asset or liability should be reported separately. 'Remeasurement' refers to the revision of estimates embedded in the carrying values of assets and liabilities.

• FASB's conclusions on discontinuing operations are different from those of IASB. FASB would present discontinuing operations below after-tax profit on the performance statement, and measured net of income taxes, rather than as part of reporting pre-tax expenses by function. IASB takes the latter approach.
• FASB has not yet decided whether to retain the concept of extraordinary items or whether they should be reported on the face of the performance statement or in the notes. FASB believes that extraordinary items, if retained and if presented on the face of the performance statement, should be shown as part of pre-tax results of operations. IASB would abolish extraordinary items.

The IASB project manager noted that, while there are some differences in tentative conclusions, both IASB and FASB are working with a matrix format for the performance statement -- separating out financing activities from business operating activities and, within operating activities, separating out various types of income, expense, gains, and losses. IASB is leaning toward a three-column presentation consistent with IASB Principle 3 -- income and expense items initially recognised in the current period, remeasurement of prior period items, and a total column. The total column is similar to today's income statement, so there would be no loss of information.

The reason for distinguishing between financing and operating is to arrive at a measure of results of business activities that is before all costs of capital. This requires a definition of debt finance. IASB has identified three characteristics of debt: substitutability with equity finance, it is independent from the activities the enterprise is engaged in, and it involves deferral of settlement so that the returns on debt represent returns relating to the passage of time. The Boards discussed whether these criteria can be operationalised.

Representatives of both Boards noted that because of differences in existing IASB and FASB accounting standards, the performance statements would not be identical even if identical performance reporting standards were adopted. An example cited was the 'split accounting' of IAS 32, which recognises a portion of the proceeds of a compound financial instrument as equity. This is not currently a FASB standard. This results in different measures of interest expense under FASB and IASB standards.

The IASB project manager discussed the benefits of separating current period items from remeasurements, using measurement of pension expense as an example. An entity whose actual pension experience exactly matches its actuarial assumptions will have no remeasurements in the second column of the performance statement. An entity that 'consistently gets it wrong' will have many gain and loss items (remeasurements) in the second column. The second column will therefore provide insight about the reliability and sustainability of amounts reported in the first column. Several members of the two Boards noted that column 2 provides evidence of 'quality of earnings' as well as predictive ability. It was noted that the split might 'institutionalise pro forma earnings' by causing users to focus on column one which excludes the 'volatility' elements reported in column 2, and the Boards discussed whether that is a good or a bad thing.

The Boards also discussed whether a distinction should be made in the performance statement between measurements that result from actual (contractual) transactions and measurements (whether at initial recognition or remeasurement) based on estimated values -- a 'hard' and 'soft' earnings split.