Financial Statement Presentation

Date recorded:

Analysis of changes in balances of assets and liabilities

The Boards were asked to deliberate three implementation issues related to the tentative decision, taken at the October 2009 joint meeting, to require the presentation of changes in the balances of all significant assets and liability line items in the notes to the financial statements. Without any discussion on the matter, the Boards agreed that the analyses of changes should be presented in the context of related information as long as the analysis is accompanied by adequate narrative and descriptive explanations. When asked whether the analysis should be presented for the current period only or for comparable period as well, the Boards agreed that the current period financials would drive the presentation of the financials for prior periods and that an exception from providing comparative information is, therefore, not needed.

As some Standards in both accounting frameworks already require a reconciliation of the beginning and ending balance of some items, staff presented three alternatives for handling the existing requirements for specific reconciliations:

  • Alternative A: the requirement to present analyses set out in the Financial Statement Presentation (FSP) Standard would supersede any existing requirements;
  • Alternative B: maintain existing requirements. However, guidance on how to present the reconciliation would be removed from existing standards and replaced with a reference to the new FSP Standard; or
  • Alternative C: maintain existing requirements and guidance on how to reconcile specific line items with an additional requirement that those reconciliations should be consistent with the requirements of the new FSP Standard.

Some Board members expressed concerns that preparers will see this requirement in a negative light and regard it as 'pile-on' of disclosures. One Board member suggested asking constituents a specific question on what reconciliations should be deleted or what information they fear would be lost if these reconciliations are no longer provided. Another Board member noted that there is an expectation that the Boards will address the information overload required by the various Standards, but that will be better dealt with as part of the Disclosure Framework. When asked to vote on the matter, the Boards tentatively agreed with Alternative C and that the analysis should explain the nature of the transaction or event that gave rise to the change separately distinguishing within each component any elements of change that are different from the others.

Definition of a remeasurement

Following consultation between the staff and a subset of Board members on an appropriate definition of a remeasurement, the Boards considered the following proposed definition of a remeasurement

an amount recognised in comprehensive income that reflects the effects of a change in the net carrying amount of an asset or liability and is the result of:

  • a. a change in (or transacting at) a current price or value;
  • b. a change in an estimate of a current price or value; or
  • c. a change in any estimate or method used to measure the carrying amount of an asset or liability.

Some Board members expressed their concern that by including all three changes listed above may be excessive disaggregation, although they also admitted that by only including changes (a) and (b), there may be inadequate disaggregation. One Board member questioned how an entity should distinguish between a change in estimate and a remeasurement if all changes in the measurement of an item are regarded as remeasurements. Another Board member went further by fundamentally disagreeing with the proposal on the grounds that the definition of a remeasurement does not clearly articulate what a remeasurement is. The Boards deliberated the proposed definition further and tentatively confirmed the proposed definition and related guidance, but agreed to include a specific question on the proposed definition in the ED.

The Boards further tentatively agreed to exclude the sale of inventory from the presentation of remeasurement information. However, other remeasurements that relate to inventory and receivables would not be excluded from the requirements.

The Boards were also presented with proposed application guidance on remeasurements to be included in the ED. Although the Boards did not express any general disagreements with the proposed guidance, they agreed that Board member comments on this guidance will be addressed outside the meeting.

New categories for 'financing arising from operating activities' and 'assets and liabilities arising from equity'

The Boards tentatively confirmed a proposal to include a subcategory for financing from operating activities in the operating category of the Statement of Financial Position and the Statement of Comprehensive Income for all liabilities (and assets bound to the related obligation for the purpose of settling the liability) that

  • do not meet the definition of financing;
  • are initially long-term; and
  • have a time value of money component evidenced by either interest or an accretion of the liability due to the passage of time.

The Boards then considered how to present dividends payable or instruments entered into as part of an entity's capital raising activities that do not meet the definition of equity. Based on the outcome of consultations between staff and a small group of Board members, the Boards tentatively agreed to revise the definition of debt to include assets and liabilities that arise from transactions involving an entity's own equity, such as:

  • dividends payable,
  • written put options on an entity's own shares, and
  • a prepaid forward purchase contract for an entity's own shares.

Statement of Cash Flows for an entity with funds held on deposit

The Boards continued their discussion from the January 2010 joint meeting on whether a direct method Statement of Cash Flows (SCF) should be required for financial services entities.

The Boards tentatively decided to include the existing guidance in IAS 7 and Topic 230 about the types of cash flows that may be reported net, without an exception for loans made to customers and principal collections of loans.

Some Board members commented that there is general opposition from financial institutions to their presenting a Statement of Cash Flows as the information provided is not considered useful. They would rather present liquidity tables than a statement of cash flows. Other Board members noted that making a fundamental change to the direction of project will further delay the issuing of the ED. The Boards tentatively confirmed the recommendation that financial institutions be required to present a direct method SCF, showing cash inflows and outflows between the entity and its depositors as if they were settled by external funds.

It was agreed to include, in the ED, a specific question to financial institutions on whether they prefer the direct method statement of cash flows or the indirect method along with more aggregation of information, as well as seek input on the costs and benefits of presenting cash flows in such a manner.

Divergent issues

The Boards attempted to resolve some of the differences in their tentative decisions on the presentation of certain items.

Analysing changes in specific line items

The IASB tentatively decided at its January meeting to require an analysis of all the line items in the debt category, cash, short-term investments and finance leases in a single note disclosure. The FASB indicated that they did not want to include a similar requirement, although it will ask constituents whether the information is considered relevant.

Minimum line items

The FASB indicated that it did not wish to require the inclusion of minimum line items, similar to the IASB requirements, in the Statement of Financial Position or the Statement of Comprehensive Income.

Presentation of remeasurement information

At previous meetings, the FASB indicated that it did not want to change its tentative decision to require presentation of information on remeasurements in the SCI, however, following the earlier discussion about remeasurements, the FASB tentatively decided to align its presentation requirements to that of the IASB.

Sweep issues

The Boards discussed several matters carried forward from the discussion paper that have not yet been discussed as respondents to the discussion paper had little or no concern about those particular proposals.

The Boards reconfirmed their intentions that a separate Statement of Changes in Equity must be presented and that only the components of changes in equity could be presented in the notes to the financial statements.

Some Board members questioned whether an accounting policy disclosure on the classification of assets and liabilities in operating, investing, financing assets and financing liabilities is still needed as the classification is based on the business model of the entity. It was confirmed that there has been a change in the Boards' position on classification from the discussion paper to the exposure draft as the various categories are now clearly defined.

Without further discussion, the Boards confirmed the staff recommendations with regards to:

  • not retain the requirement to disclose information about the maturities of contractual long-term assets and liabilities, as other Standards already require similar information to be disclosed;
  • clarify that cash inflows and outflows related to VAT may be netted in the SCF. In addition, the general offsetting principle in IAS 1 will be included in the ED;
  • include guidance on the disaggregation of information in the SCF for purposes of preparing a direct method SCF;
  • require the presentation of subtotals and headings.

Support for package of decisions

The Boards discussed the length of the comment period for the ED as the presentation model proposed in the ED retains the basic principles proposed in the discussion paper. The Boards agreed to provide a comment period of 5 months. The Boards also supported the drafting and publication of an ED based on the package of tentative decisions.

One FASB member indicated a possible dissent from the ED related to the direct method SCF. Three IASB members indicated that they would definitely dissent from the ED, with two more members indicating that they may also dissent. In general, the reasons for their dissent relate to the direct method Statement of Cash Flows, concerns that the project did not achieve improvement from existing requirements, and that the costs of providing the additional information outweigh the benefits achieved by users.

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