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Financial Statement Presentation

Date recorded:

The Board continued its discussions on the financial statement presentation project. The purpose of the October discussion was to get tentative views from the Board on three issues to be discussed at the joint meeting with the FASB next week:

  • The financing section and investing category
  • Presenting information about the short- and long-term nature of assets and liabilities
  • Measurement, other comprehensive income (OCI) and recycling, and statement of comprehensive income

Financing section and investing category

Issue 1: Defining the financing section

The Board had previously agreed that the financing section in the statement of financial position should comprise equity, treasury assets, and financing liabilities.

The first issue the Board discussed was whether non-financial items should be excluded from the financing section of the financial statement. To increase consistency, all non-financial assets could be excluded from the financing section. This would still not prevent financial items from being excluded when they are not a part of financing activities. Board members noted some concerns but tentatively agreed with the proposal.

The second part of this issue was related to a proposed definition of the financing section and proposed application guidance to be included in the Standard. The Board seemed to agree with the proposed definition, under which the financing section should include only financial items that management views as part of the financing of the entities business activities. However, the Board stated concern about the list of proposed items to be excluded and included, and noted that it could not issue such a list with out a thorough discussion of the items included.

Issue 2: Defining the investing category in the business section

The Board discussed the following proposed definition of the investing category of the statement of financial position which was based on the Board's request from the September meeting.

"The investing category should include only financial assets and liabilities (as defined in the literature) not classified in the financing section that management views as incidental to the entity's main business activities (referred to as investing assets and liabilities). Items typically included in the investing category are

  • a. Available-for-sale financial instruments
  • b. Equity method investments
  • c. Financial instruments held to hedge (a) or (b) above."

As for the financing category, an entity would be required to explain any items listed in the definition above that is not included in the investing category.

Board members asked for clarification as to why certain items like investment property would be excluded from the investing category. No decisions were made to this section.

Issue 3: Presentation of pension assets and liabilities

At the staff's request, the Board did not discuss this issue.

Presenting information about the short- and long-term nature of assets and liabilities

Issue 1: Short-term classification for assets and liabilities

The Board discussed whether assets and liabilities should be classified as short-term based on the operating cycle of the business or based on when the expected realization or settlement of the asset is within one year. It then discussed whether an entity should be required to present operating assets and liabilities in short- and long-term categories on the face of the income statement.

Board members were divided on whether classification of short-term assets and liabilities should depend on the operating cycle or a one year settlement/realisation criterion. They expressed agreement to splitting short- and long-term items on the face of the income statement if it provides useful information.

Issue 2: Information about liquidity

The Board had previously decided that information about the liquidity of an entity's assets and liabilities should be presented in the notes to the financial statement to help users assess the liquidity of an entity. At the October meeting the Board discussed the following three alternatives:

  • a. Information about short and long-term assets and liabilities would be presented by line item in order of liquidity. (for example, short-term assets as inventory presented separately).
  • b. Information about short- and long-term asset and liabilities would be presented by category. (for example, short-term assets as financing assets presented separately).
  • c. Information about short- and long-term asset and liabilities would be presented by line item for all but the operating category (similar to the requirement in alternative 'a' except for operating assets and liabilities, which are disclosed in the aggregate).

The Board did not choose one of these alternatives. However, it concluded that the most important issue is to understand how much information is needed rather than to focus on whether this information is stated on the face of the income statement or disclosed in the notes.

The Board did not discuss the third issue in the paper regarding deferred taxes.

Measurement, OCI and recycling, the statement of comprehensive income

Issue 1: Information regarding measurement of assets and liabilities

The Board discussed and indicated agreement that the financial statement presentation standard should include the general guidance in IAS 1 that requires disclosure of measurement basis used in preparing the financial statements in the summary of significant accounting policies. It also agreed that, if items included within a certain line item in the statement of financial position are measured on more than one measurement basis, an entity should be required to disclose the measurement bases used and the amount included in that line item based on each measurement basis.

The Board then expressed agreement that disclosure of information about the significant uncertainty in the current measure of assets and liabilities and how the measured amount was selected, within the context of the particular measurement attribute used should be prescribed in individual standards when the Board deems it appropriate.

The Board also discussed whether the financial statements should provide information that would allow a user to distinguish between changes in assets and liabilities that are due to remeasurements and changes that are not. It also discussed how remeasurements should be defined. No indications were made on this issue but the Board asked the staff to explore this further.

Issue 2: OCI and the mechanism of recycling

The Board discussed whether other comprehensive income (OCI) should be a separate section in each of the financial statements or whether OCI items should be classified in the appropriate categories that are based on functional activities of an entity (that is not to add the OCI section to the working format). The Board members expressed split views on how to move forward on this.

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.