Primary Financial Statements

Date recorded:

Cover paper and summary of redeliberations (Agenda Paper 21)

In December 2019, the IASB published Exposure Draft ED/2019/7 General Presentation and Disclosures. The comment period ended on 30 September 2020. In this meeting, the IASB continues its redeliberations of the proposals in the ED.

Principles for presentation and required line items in primary financial statements (Agenda Paper 21A)

Background

This paper considered the relationship between the general principle of disaggregation for the presentation of information in the primary financial statements and the requirements in IAS 1 for specific line items in those statements. This paper also considered the feedback on the proposals for required line items in the ED, which were largely carried from IAS 1. This paper did not explore the implications of digital reporting which will be discussed in future meetings.

Staff recommendations

The staff recommended the IASB revise:

  • Paragraph 42 of the ED to “this [draft] Standard requires minimum specified line items and subtotals to be presented in the statement(s) of financial performance and the statement of financial position. An entity shall present additional line items (including by disaggregating required minimum line items), headings and subtotals in the statement(s) of financial performance and the statement of financial position when such presentations are relevant to an understanding of the entity’s financial performance or financial position necessary to provide an understandable overview of the entity’s income and expenses or assets, liabilities and equity.”
  • The introductions to the lists of required line items in paragraphs 65 and 82 of the ED to “In addition to items required by other IFRS Accounting Standards, unless doing so reduces how useful the statement is in providing an understandable overview of the entity’s income and expenses [or assets, liabilities and equity], an entity shall present in the statement of profit or loss [or statement of financial position] line items for...”

In addition, the staff recommended that the IASB add application guidance that indicates in general:

  • It is unlikely that the presentation of items set out in paragraph 65 of the ED that are classified in the operating category would reduce how useful the statement is in providing an understandable overview of the entity’s income and expenses; and
  • in contrast, it is likely that the presentation of items set out in paragraph 65(b) of the ED that are classified in the investing category would reduce how useful the statement is in providing an understandable overview of the entity’s income and expenses.

Furthermore, the staff recommended the IASB include in the Basis for Conclusions an analysis of the costs and benefits of requirements for specified line items. The staff recommended that the IASB not revisit the existing requirements for specified line items brought forward from IAS 1 and not to add a specific requirement to present impairments of non-financial assets. The staff recommended the IASB proceed with the proposed requirement to present goodwill separately from intangible assets and proceed with the proposed requirement for required line items to be presented in each affected category in the statement of profit or loss. Lastly, the staff recommended that the IASB not specify any required line items to be presented in the financing category in the statement of profit or loss.

IASB discussion

Some IASB members thought the revision to paragraph 42 of the ED is unnecessary and may result in the reduction of useful disclosures presented and can introduce additional judgements. In addition, some IASB members believe that the removal of “minimum” line items and replacing it with “specified” line items can result in unintended signalling consequences. The staff clarified the objective of the proposed changes is to align the drafting of the ED with the rest of the IFRS Accounting Standards. Some IASB members also highlighted the proposed wording “understandable overview” is difficult to translate into other languages. The IASB members recommended the staff replace this with an overall objective for this requirement. The staff agreed with the IASB members’ recommendations that primary financial statements cannot by themselves provide all necessary information and some information can only be given in the notes. Some IASB members agreed with the staff’s recommendation as the proposed wording is better aligned to existing terminology in the Conceptual Framework. In addition, some IASB members also thought that the revised wording will support the transition to digital reporting.

Some IASB members expressed concerns that revising the introduction to the lists of required line items in paragraphs 65 and 82 of the ED would require preparers to make more judgement around what information to disclose. In addition, some IASB members preferred to be more explicit in the proposal rather than including the general statement “In addition to items required by other IFRS Accounting Standards…” The staff clarified that the proposed wording was intended to identify any consequential amendments from changes to the IFRS Accounting Standards. The IASB members recommended that the staff clarify that materiality should be considered in the context of a complete set of financial statements (i.e. primary financial statements and the notes to the financial statements). Therefore, if the line item is sufficiently material to be disclosed but there is other competing material information, then preparers should consider whether some of the material information should be presented in the notes to the financial statements.  Many IASB members did not agree with the staff’s proposal to add application guidance to state that it is likely that the presentation of items set out in paragraph 65(b) of the ED that are classified in the investing category would reduce how useful the statement is in providing an understandable overview of the entity’s income and expenses. This is because there is a presumption that the presentation of these items would reduce comparability. 

The IASB members also asked the staff to clarify between a minimum line item versus a line item that would be of interest of users of the financial statements but is not necessarily a required minimum line item. Most IASB members did not agree with the proposal to include a cost and benefit analysis of requirements in the Basis for Conclusions. The staff clarified that this proposal was intended to be a reminder for the staff when drafting future standards.

Most IASB members agreed with the staff’s recommendation to continue with the proposed requirement for required line items to be presented in each affected category in the statement of profit or loss. However, the IASB members asked the staff to clarify that two identically labelled line items such as interest expense should be clearly distinguished between the various categories as this would be important for digital reporting.

The IASB members asked the staff to clarify the recommendation not to specify any required line items to be presented in the financing category in the statement of profit or loss. The staff confirmed that the requirement is not specifying line items within the financing category, but the proposal does still require segregation of items. Some IASB members expressed concern that because the proposal does not specify minimum line items to be presented, there is a risk that information may be inappropriately aggregated into a single line when the nature of the line item is sufficiently different to warrant separate presentation. The staff confirmed that the onus is on the preparers to disaggregate a line item further if necessary and there was no good principle that the staff could establish which would require preparers to further disaggregate line items. The staff proposed that guidance should be drafted which will identify additional characteristics for when line items are should be disaggregated further.

IASB decision

8 of the 12 IASB members agreed with the staff’s recommendation to revise paragraph 42 of the ED to “this [draft] Standard requires minimum specified line items and subtotals to be presented in the statement(s) of financial performance and the statement of financial position. An entity shall present additional line items (including by disaggregating required minimum line items), headings and subtotals in the statement(s) of financial performance and the statement of financial position when such presentations are relevant to an understanding of the entity’s financial performance or financial position necessary to provide an understandable overview of the entity’s income and expenses or assets, liabilities and equity.”

10 of the 12 IASB members agreed to revise the introductions to the lists of required line items in paragraphs 65 and 82 of the ED to “In addition to items required by other IFRS Accounting Standards, unless doing so reduces how useful the statement is in providing an understandable overview of the entity’s income and expenses [or assets, liabilities and equity], an entity shall present in the statement of profit or loss [or statement of financial position] line items for...”

9 of the 12 IASB members agreed with the proposal to add application guidance that indicates that in general, it is unlikely that the presentation of items set out in paragraph 65 of the ED that are classified in the operating category would reduce how useful the statement is in providing an understandable overview of the entity’s income and expenses. However, none of the IASB members agreed to add application guidance that indicates in contrast, it is likely that the presentation of items set out in paragraph 65(b) of the ED that are classified in the investing category would reduce how useful the statement is in providing an understandable overview of the entity’s income and expenses.

10 of the 12 IASB members agreed to remove the term ‘minimum’ from paragraph 42 of the ED.

None of the IASB members agreed to include in the Basis for Conclusions an analysis of the costs and benefits of requirements for specified line items.

11 of the 12 IASB members agreed not to revisit the existing requirements for specified line items brought forward from IAS 1.

All of the IASB members agreed to proceed with the proposed requirement to present goodwill separately from intangible assets.

10 of the 12 IASB members agreed not to add a specific requirement to present impairments of non-financial assets.

All of the IASB members agreed to proceed with the proposed requirement for required line items to be presented in each affected category in the statement of profit or loss.

9 of the 12 IASB members agreed not to specify any required line items to be presented in the financing category in the statement of profit or loss.

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