Cover note and summary of feedback and redeliberations (Agenda Paper 21)

In September 2022, the IASB completed redeliberations on key aspects of the proposals in the Exposure Draft ED/2019/7 General Presentation and Disclosures. In this meeting, the IASB will discuss the feedback from targeted outreach conducted between September and December 2022 and continue discussing the proposals from the ED.

Targeted outreach feedback and next steps (Agenda Paper 21A)

Background

This paper analysed the feedback received from the targeted outreach events and sets out the plan for responding to the feedback.

Staff recommendation

The staff summarised the feedback received in the target outreach and recommend the IASB consider in its redeliberation plan the classification of income and expenses from associates and joint ventures accounted for using the equity method and consider whether further application guidance is required for classifying income and expenses from off-balance sheet items. In addition, the staff recommended that the IASB consider whether interest expenses on lease liabilities should be included in operating profit when subleasing is a main business activity and whether further application guidance is required for the rebuttable presumption in the definition of management performance measures (MPMs). The staff recommended that the IASB consider the topics such as subtotals and categories, MPMs, disaggregation and other topics included in the redeliberation plans and address these topics in the drafting processes. The staff recommended that the IASB should not consider the topics included in Appendix C in the redeliberations plan.

IASB discussion

IASB members agreed that this was a useful paper in understanding the feedback from the outreach and whether the proposals are acceptable in practice. Some IASB members observed that many stakeholders would like to see this project completed as soon as possible and therefore asked the staff to prepare educational material to inform the market of the IASB’s thinking process once redeliberations have been completed. One IASB member agreed there should not be an undue cost relief on the classification of foreign exchange differences as the current requirement follows the principle of classifying in accordance with underlying transaction with the default category being operating activities. In addition, the current requirement incentivises entities to manage their foreign exchange risk. Other IASB members said it is unclear whether each category would require a separate line showing the foreign exchange differences. Many IASB members agreed with the feedback that clarification is required on whether a performance measure disclosed in line with IFRS 8 or a measure related to a specific business unit that is not a reporting segment would meet the definition of an MPM. Many IASB members agreed with the IASB’s tentative decision to require disclosure of the amounts of depreciation, amortisation and employee benefits included in each functional line item in the statement of profit or loss due to cost considerations.

Some IASB members noted the feedback on income and expenses from associates and joint ventures accounted for using the equity method being classified in the investing category in all circumstances on the basis the main business activity is to manage associates and joint ventures accounted for using the equity method. These IASB members asked if the staff could reconsider if there is an alternative solution to the proposal.

Some IASB members raised the concern with the notion that entities have ‘control’ over their public communications because in some jurisdictions, ‘control’ implies internal controls and they would not want to require certification of those controls. Another IASB member asked the staff to clarify that entities should clearly identify their channels of public communication as this is the only way stakeholders can identify what has been communicated. One IASB member stated that communication channels of an entity are always changing and whether it would be possible to consider the definition of public communication based on the intention of management. However, some IASB members rejected this proposal given it would be difficult to establish the intention of management.

Some IASB members asked whether some aspects of the ED should be reexposed. However, another IASB member highlighted the purpose of reexposing is not that the IASB has changed its decisions but rather whether a new round of consultation can yield additional results and therefore cautioned the decision to reexpose. One IASB member asked the staff to clarify the reasons for not considering the feedback on volatile items or aligning the requirements of segment reporting with this project. The staff clarified that the feedback on volatile items was not a new topic and it was not sufficient to warrant redeliberation. In addition, the scope of this project specifically excluded addressing issues with segmental reporting.

IASB decision

All IASB members agreed with the staff recommendation to consider in its redeliberation plan the classification of income and expenses from associates and joint ventures accounted for using the equity method and consider whether further application guidance is required for classifying income and expenses from off-balance sheet items. All IASB members agreed with the staff recommendation to consider whether interest expenses on lease liabilities should be included in operating profit when subleasing is a main business activity and whether further application guidance is required for the rebuttable presumption in the definition of MPMs. All IASB members agreed with the staff recommendation to consider the topics such as subtotals and categories, MPMs, disaggregation and other topics included in the redeliberation plans and address these topics in the drafting processes. All IASB members agreed with the staff recommendation not to consider the topics included in Appendix C in the redeliberation plan.

General disaggregation requirements—relationship with specific presentation and disclosure requirements (Agenda Paper 21B)

Background

This paper discussed the relationship between the general requirements on disaggregation the IASB has tentatively decided to include in the new IFRS Accounting Standard on General Presentation and Disclosures and specific presentation and disclosure requirements in the new Standard and other IFRS Accounting Standards.

The staff asked whether the IASB have any comments on the analysis of the relationship between the general requirements on disaggregation and specific requirements for the presentation and disclosure. The paper did not ask the IASB to make any decisions.

IASB discussion

One IASB member raised the concern with the approach to develop a limited list of items that would be necessary for almost all entities because entities should still consider the nature of income and expenses presented in that line item. Some IASB members would not want to develop a limited list of items to disclose as this will result in a checklist approach. One IASB member asked the staff to clarify whether the IASB will provide detailed specific disclosure requirements on the categories in the statement of financial performance in future projects. The staff confirmed this is the intention. One IASB member asked the staff to provide some examples of what is an ‘understandable overview’ of income and expenses or assets, liabilities and equity.

IASB decision

The IASB did not make any decisions on this paper.

General requirement to disaggregate material information—implications of the IASB's tentative decisions on specific disclosure requirements (Agenda Paper 21C)

Background

The IASB made some tentative decisions to withdraw specific disclosures proposed in the ED. This paper discussed the implications of those tentative decisions for the general requirement to disaggregate material information.

Staff recommendation

The staff recommended that the IASB gives an exemption from the general requirement to disaggregate material information in relation to information about the nature of operating expenses that are included in a function line item in the statement of profit or loss. All specific disclosure requirements in IFRS Accounting Standards relating to the nature of operating expenses would not be affected by the exemption and would continue to apply.

IASB discussion

IASB members were supportive of withdrawing the specific requirement for the disclosure of unusual income and expenses because many IASB members believe that the general requirement to disaggregate material information would be sufficient to allow entities to disclose unusual income or expenses.

Many IASB members agreed not to add a general cost relief to the general requirement to disaggregate material information. Those IASB members think that the costs of exploring alternatives would outweigh the benefits. One IASB member asked whether introducing a general exemption would prevent preparers from presenting disclosure they already include.

One IASB member raised a concern with the current wording of the proposal to give a specific exemption from the general requirement to disaggregate material information. In the IASB member’s view, it is ambiguous as to whether the exemption is only for disaggregated amounts. The IASB member highlighted that this would contradict the general disaggregation principles. The staff clarified that there will be a future paper on disaggregation of material information. The IASB member suggested that the staff clarify that entities will need to apply the requirements of the individual standards to disclose expenses in aggregation by nature and information but will also need to disclose the detailed components of that aggregated line item. Many IASB members supported the staff recommendation not to include a cost threshold in the specific exemption from the general requirement to disaggregate material information in relation to information about the nature of operating expenses that are included in a function line item in the statement of profit or loss on the basis that the internal systems of entities differ and will therefore be difficult to establish an appropriate cost threshold.

IASB decision

All IASB members agreed that the tentative decision to withdraw specific requirements for the disclosure of unusual income and expenses does not result in the need for any change in the application of the general requirement to disaggregate material information.

All IASB members agreed with the staff recommendation not to add a general cost relief to the general requirement to disaggregate material information.

11 of 12 IASB members agreed with the staff recommendation to give a specific exemption from the general requirement to disaggregate material information in relation to information about the nature of operating expenses that are included in a function line item in the statement of profit or loss.

11 of 12 IASB members agreed with the staff recommendation not to include a cost threshold in the specific exemption and all specific disclosure requirements in IFRS Accounting Standards relating to the nature of operating expenses would not be affected by the exemption and would continue to apply.

General disaggregation requirements—further issues (Agenda Paper 21D)

Background

This paper discussed possible further requirements and application guidance relating to the general disaggregation requirements to be included in the new IFRS Accounting Standard on General Presentation and Disclosures.

Staff recommendation

The staff recommended that the IASB clarify that an entity is required to describe disaggregated amounts in a clear and understandable manner that would not mislead users and be transparent about the meaning of the terms used and the methods applied to the disaggregation.

The staff recommended that the IASB add a requirement that any line items presented in the statement(s) of financial performance and the statement of financial position should be recognised and measured in accordance with IFRS Accounting Standards and not prohibit the disaggregation of income and expenses in the notes to the financial statements into components not recognised and measured in accordance with IFRS Accounting Standards.

Furthermore, the staff recommended that the IASB, in relation to the use of the label ‘other’, extend the proposals in the ED for the label ‘other’ to be used only if no more informative label can be found. In addition, if no more informative label can be found for an aggregation of diverse material items, to require the label ‘other’ to be as precise as possible about the type of item the ‘other’ amount is, for example ‘other operating expenses’, or ‘other finance expenses’. However, if no more informative label can be found for an aggregation of diverse immaterial items, the IASB should require that an entity considers whether the aggregated amount is sufficiently large that users of financial statements might question what it includes. If so, further information about that amount is material and accordingly must be provided. Examples of what might be material information about the amount are an explanation that no material items are included in the amount or an explanation that the amount consists of several unrelated immaterial items with an indication of the nature and amount of the largest item.

IASB discussion

Some IASB members did not think it was necessary to specify in the requirements that the disaggregated amounts should be described in such a manner that would not mislead users. These IASB members suggested this can be clarified in the Basis for Conclusions (BC). The staff clarified that the intention of including ‘not mislead users’ was because MPM requirements include the need for ‘faithful representation’ which would be the opposite to ‘not mislead users’ and have therefore included equivalent wording for consistency. Some IASB members were not supportive of providing additional guidance on how to improve the description of disaggregated amounts but acknowledged it was a request from the feedback.

IASB members expressed support that line items presented in the statement(s) of financial performance and the statement of financial position should be recognised and measured in accordance with IFRS Accounting Standards. They acknowledged that this was a higher hurdle than for line items presented in the notes to the financial statements. Many IASB members noted this would not prohibit preparers from including MPMs on the face of the statement(s) of financial performance and the statement of financial position because most of the MPMs are measured in accordance with IFRS Accounting Standards. Some IASB members asked that the staff explain in the BC that disaggregation of line items in the notes should be a faithful representation of the disaggregated amounts. However, other IASB members did not agree with the fact that MPM information in the notes can include amounts that are not in compliance with IFRS Accounting Standards. The staff confirmed an entity is not prohibited from including a breakdown of an MPM in the notes even if not all the disaggregated amounts follow IFRS Accounting Standards, provided this does not obscure the IFRS line items. However, the entity would need to describe their accounting policy and how the non-IFRS compliant figure reconciles to the IFRS measure. The staff noted the reason for permitting this is because they were unable to draw the line between providing disaggregation that is not helpful and disaggregation that is helpful but not specified in the IFRS Accounting Standards. Some IASB members suggested that the staff explicitly prohibit the disaggregation of income and expenses into components not recognised and measured in accordance with IFRS Accounting Standards presented in the statement(s) of financial performance and the statement of financial position. However, other IASB members were less supportive of an explicit prohibition.

Many IASB members raised concerns that the requirement to provide an explanation that no material items are included in the aggregated immaterial amount may result in boilerplate disclosure. These IASB members asked the staff to refer to terminology used in the ED on what is ‘material’, ‘immaterial’ and ‘material information’. One IASB member noted that the current proposal requires an entity to consider whether the users of the financial statements might question what that amount includes. This goes beyond the requirements of the ED. Some IASB members questioned whether the requirement would permit preparers from presenting diverse material items in a line item labelled ‘other’. The staff confirmed this may be possible but the entity would need to provide a disaggregation of those aggregated balance in the notes. Other IASB members did not believe aggregating immaterial amounts together is an issue because there will always be amounts which do not fit into prescribed lines items.

IASB decision

11 of the 12 IASB members agreed with the staff recommendation to clarify that an entity is required to describe disaggregated amounts in a clear and understandable manner that would not mislead users and be transparent about the meaning of the terms used and the methods applied to the disaggregation.

All IASB members agreed with the staff recommendation to add a requirement that any line items presented in the statement(s) of financial performance and the statement of financial position should be recognised and measured in accordance with IFRS Accounting Standards.

11 of the 12 IASB members agreed with the staff recommendation not to prohibit the disaggregation of income and expenses in the notes to the financial statements into components not recognised and measured in accordance with IFRS Accounting Standards.

All IASB members agreed with the staff recommendation in relation to the use of the label ‘other’, extend the proposals in the ED for the label ‘other’ to be used only if no more informative label can be found and if no more informative label can be found for an aggregation of diverse material items, to require the label ‘other’ to be as precise as possible about the type of item the ‘other’ amount is, for example ‘other operating expenses’, or ‘other finance expenses’.

9 of the 12 IASB members agreed with the staff recommendation that if no more informative label can be found for an aggregation of diverse immaterial items, the IASB should require that an entity considers whether the aggregated amount is sufficiently large that users of financial statements might question what it includes. If so, further information about that amount is material and accordingly must be provided. Examples of what might be material information about the amount are an explanation that no material items are included in the amount or an explanation that the amount consists of several unrelated immaterial items with an indication of the nature and amount of the largest item.

Other comprehensive income (Agenda Paper 21E)

Background

This paper addressed feedback on the proposal in the ED to relabel the two categories of other comprehensive income (OCI).

Staff recommendation

The staff recommended that the IASB withdraw the proposal to relabel the two categories of OCI as remeasurements permanently reported outside profit or loss and income and expenses to be included in profit or loss in the future when specific conditions are met.

IASB discussion

Many IASB members agreed with the proposal based on feedback from stakeholders that it is unnecessary to change the labelling of the two categories of OCI. Some IASB members asked the staff to emphasise that this decision does not change the existing requirements and does not require entities to relabel but is simply reverting to the existing requirements on OCI. The staff confirmed that the ED cannot refer to wording from IAS 1 due to decisions made on this project on required line items. One IASB member raised the concern that based on the proposed requirements in the ED, large positive and large negative balances may be shown in other comprehensive income. The staff clarified that material balances would need to be further disaggregated in the notes to the financial statements.

IASB decision

All the IASB members agreed with the staff recommendation to withdraw the proposal to relabel the two categories of OCI as remeasurements permanently reported outside profit or loss and income and expenses to be included in profit or loss in the future when specific conditions are met.

Statement of cash flows—interest received and classification for entities with specified main business activities (Agenda Paper 21F)

Background

This paper set out staff analysis and recommendations relating to some of the amendments to IAS 7 proposed in the ED. This paper considered the classification of interest received in the statement of cash flows for entities other than those with specified main business activities and interest received, interest paid and dividends received for entities with specified main business activities.

Staff recommendation

The staff recommended that the IASB confirm the proposal in the ED to require that entities other than entities with specified main business activities classify interest received as cash flows arising from investing activities in the statement of cash flows.

In addition, the staff recommended that the IASB confirm the proposals in the ED to require entities with specified main business activities to classify the following cash flows in a single category of the statement of cash flows (that is, either as cash flows from operating, investing or financing activities):

• Dividends received (other than dividends received from associates and joint ventures accounted for using the equity method)
• Interest paid
• Interest received

IASB discussion

Some IASB members observed that stakeholders were supportive of allowing the option to classify interest received and dividend received as cash flows arising from investing activities in the statement of cash flows. However, these IASB members acknowledged that there are mixed views as to how this can be achieved. Some IASB members noted that one of the concerns raised in the feedback is that the use of category in the statement(s) of financial performance and the statement of cash flows have different meanings and believe the current proposal does not allow for alignment between the statement of financial position, the statement(s) of financial performance and the statement of cash flows. One IASB member stated the objective of this project was about removing optionality rather than achieving alignment between the statements.

One IASB member proposed including interest and dividend received in the operating category because this would be aligned to digital reporting and US GAAP. However, many IASB members disagreed with this on the basis that it is not futureproof and would not be suitable for conglomerates. These IASB members believe entities such as conglomerates should be permitted to disaggregate interest and dividend received into the various categories and presenting it accordingly. Whilst other IASB members believe interest and dividend received should be presented in a single category on the face of the financial statements with appropriate disaggregation in the notes to the financial statements.

Many IASB members rejected the proposal to withdraw the accounting policy choice with regards to the classification in the statement of cash flows because the scope and timing of a project on the statement of cash flows is uncertain.

IASB decision

7 of the 12 IASB members agreed to confirm the proposal in the ED to require that entities other than entities with specified main business activities classify interest received as cash flows arising from investing activities in the statement of cash flows.

7 of the 12 IASB members agreed to confirm the proposals in the ED to require entities with specified main business activities to classify the following cash flows in a single category of the statement of cash flows (that is, either as cash flows from operating, investing or financing activities):

• Dividends received (other than dividends received from associates and joint ventures accounted for using the equity method)
• Interest paid
• Interest received