The Board's discussion focused on IASB's Performance Reporting Principle 1, which states that a statement of comprehensive income should enable the user to distinguish the return on total capital employed from the return on equity. It follows from that principle that all components of comprehensive income should be classified as either operating or financing, such that total operating income plus total financing income is equal to comprehensive income. IASB members reaffirmed their support for that principle.

In June 2002, the IASB had decided that there should be a separate financing category in the statement of comprehensive income. The Board noted that although financing costs are a deduction, like any other expense, in calculating income attributable to equity holders, they are unlike other expenses in that they represent a return to providers of finance. While comprehensive income is the appropriate measure of return to providers of equity finance, operating income (before deducting financing costs) is the appropriate measure of return to providers of both equity and debt finance.

The Board discussed proposed characteristics to define debt financing and concluded, simply, that all liabilities are debt financing (including bank overdrafts). If a cost of that debt is recognised under accounting recognition and measurement Standards, then it is a financing cost for the purpose of presenting comprehensive income. Obvious examples are interest and amortisation of discount. Less obvious examples might include the interest component of pension expense and even a portion of rent expense under operating leases. The performance reporting Standard will not address calculation or display of interest that is not required by other Standards, but it might include a list of financing costs recognised under existing International Financial Reporting Standards.

The Board discussed whether financing cost would ever be net of some interest income. One view is that all assets generate a return, and that return is available to pay the cost of financing. Therefore, interest income would never be part of financing. Another view is that certain assets are managed as an offset to debt rather than as an investment (the treasury function of the entity is managed on a net basis). Under this view, surplus cash would be deducted in arriving at a net financing position, and income from that surplus cash is an offset to financing cost.

That discussion led to consideration of two other possibilities:

• whether the financing category should be broadened to be a treasury category that would include all interest expense and all interest income (this would require restatement of Principle 1); or
• whether there should be a treasury subsection within the operating section of the statement of comprehensive income.