Financial Statement Presentation

Date recorded:

The Board discussed a principle for presenting liquidity information that would apply to both financial institutions (FIs) and non-financial institutions (non-FIs).


Issue 1: The liquidity working principle

The staff asserted that the liquidity working principle should encompass both short-term and long-term liquidity and proposed the following revised wording of the liquidity working principle:

'Financial statements should present information in a manner that helps a user assess an entity's solvency (the ability to pay debt and other borrowings from external sources as they come due) by providing information about the liquidity of the entity's assets and liabilities (nearness to cash, the means to assessing solvency or time to conversion to cash).'

The Board members disagreed with the rephrasing for various reasons. Some Board members noted that solvency relates to finance planning, that is, the ability of matching future cash inflows and outflows, and doubted that financial statements can be used to assess solvency. Others mentioned that the definition of solvency is too narrow since in assessing solvency future commitments need also to be taken into consideration.

The Board directed the staff to further elaborate the interdependencies between liquidity and solvency for discussion at a future meeting.


Issue 2: Application of the liquidity working principle

The proposed concept requires an entity to provide the following information in the financial statements (further details are available in Observer Note 9, available on the IASB Website):

  • Qualitative information regarding liquidity management activities (liquidity management policy and processes).
  • Details of maturities of its long-term assets and liabilities with contractual maturities.
  • Maturities of its short-term assets and liabilities as described below:

If an entity manages its needs for cash based on a horizon shorter than one year, the detailed maturities of assets and liabilities with contractual maturities should be provided for more than one time band.

If an entity does not manage its needs for cash based on a horizon shorter than one year, the maturity information may be provided either on the face of the statement of financial position or in the notes. However, if it presents the information on the statement of financial position, all of its assets and liabilities should be classified as either short- or long-term.

The Board members expressed mixed views on the proposal. The discussion focused on to what extent this concept differs from the current provisions in IFRS 7 Financial Instruments: Disclosures. The main concerns raised were that the concept is too formalistic and complex, that it is and that costs may outweigh the benefits. One Board member noted that companies with a more sophisticated liquidity management (that is, horizon less than one year) have to provide more detailed information than companies with a less sophisticated one.

No decisions were made but the staff was asked to prepare a detailed comparison of the concept to existing guidance in IFRSs, particularly in IFRS 7.

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