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 session, the IASB discussed the feedback from targeted outreach conducted between September and December 2022 and continued discussing the proposals in the ED.

Issues related to categories and subtotals (Agenda Paper 21A)

Background

This paper set out staff analysis and recommendations relating to categories and subtotals in the statement of profit or loss. This paper discussed the classification of income and expenses arising on the derecognition of assets or liabilities (for example, the disposal of a consolidated subsidiary) and income and expenses arising from transactions or other events that result in a change in the category in which an entity classifies income and expenses from assets or liabilities, without affecting the recognition of the assets or liabilities (for example, transfers in and out of investment property). Appendix B to the paper summarised other outstanding issues for which the staff concludes no further action is required, including:

• The prohibition on the presentation of the subtotal 'profit before financing and income tax' when an entity that provides financing to customers as a main business activity classifies in the operating category all income and expenses from liabilities that arise from transactions that involve only the raising of finance
• The presentation of subtotals that are equal
• The requirements for interim financial statements relating to an entity's ability to continue as a going concern
• The disclosure of significant judgements made in applying presentation and disclosure requirements

Staff recommendation

The staff recommended that the IASB clarify that:

• Income and expenses on the derecognition of an asset or liability are classified in the same category as the income and expenses generated by that asset or liability immediately before derecognition (Recommendation 1)
• When a transaction or other event changes the category in the statement of profit or loss in which income and expenses from an asset or liability are classified without affecting the recognition of the asset or liability, the income or expenses from that transaction or event are classified in the category in which income and expenses from the asset or liability were classified immediately before the transaction or other event (Recommendation 2)
• If either of the scenarios above arise from a transaction or other event that involves a group of assets or liabilities that generated income and expenses that were classified in different categories immediately before the transaction or other event: (Recommendation 3)
  • If any of the assets in the group is an asset that generated income and expenses that were classified in the operating category, the gain or loss on the transaction or other event is classified in the operating category
  • If all the assets in the group generated income and expenses that were classified in the investing category, the gain or loss on the transaction or other event is classified in the investing category

Lastly, the staff recommended that the IASB confirm that an entity shall not present the subtotal ‘profit or loss before financing and income tax’ when an entity that provides financing to customers as a main business activity classifies in the operating category all income and expenses from liabilities that arise from transactions that involve only the raising of finance. (Recommendation 4)

IASB discussion

Some IASB members expressed concerns about Recommendation 3. While many IASB members acknowledged that this is a pragmatic proposal, some IASB members considered that preparers should be permitted to split the group of assets into different categories if they are able to do so. Some IASB members suggested that the staff clarify that when a transaction or other event changes the category in the statement of profit or loss in which income and expenses from an asset or liability are classified, it can potentially affect the recognition of the asset or liability. Furthermore, some IASB members asked the staff whether the proposal relates to groups of assets and liabilities. The staff confirmed that. Some IASB members asked the staff to explain the rationale for the proposal in the Basis for Conclusions (BC).

IASB decision

13 of the 14 IASB members agreed with Recommendations 1-3. All IASB members agreed with Recommendation 4.

Issues related IAS 29 Financial Reporting in Hyperinflationary Economies and IAS 12 Income Taxes (Agenda Paper 21B)

Background

This paper set out the staff analysis and recommendations for IAS 29 and IAS 12 issues related to the ED. This paper incorporated the additional feedback on IAS 29 that was received since Agenda Paper 21E for the March 2023 IASB meeting was published. The IASB was not asked to make decisions in the March 2023 IASB meeting so that the staff could do further research before asking the IASB to make decisions.

Staff recommendation

The staff recommended that the IASB clarify in the new Standard that the gain or loss on the net monetary position is classified in the operating category in the statement of profit or loss when an entity presents it in a single line item applying IAS 29 and foreign exchange differences arising from asset and liabilities in scope of IAS 12 shall be classified in the income tax category in the statement of profit or loss. (Recommendation 5)

The staff also recommended that the IASB make a consequential amendment to the requirements in paragraph 78 of IAS 12 for classifying foreign exchange differences on deferred tax assets and liabilities to align with the recommendations above.  (Recommendation 6)

IASB discussion

Many IASB members said they agreed with the staff recommendation because the proposal neither disrupts the application nor interprets the application of IAS 29. Some IASB members asked whether a separate category should be created for foreign exchange differences resulting from the application of IAS 21. The staff said this would create additional complexity. Most IASB members agreed that it would not be useful information to present for example, interest expense in one category and foreign exchange differences from the application of IAS 21 in the same category of the statement of profit or loss as the income and expenses from the items that gave rise to the foreign exchange differences and gain or loss on net monetary position in a single category.

Some IASB members questioned whether it is necessarily to consider undue cost or effort when assessing the classification of foreign exchange differences on deferred tax assets and liabilities. The staff clarified that this is consistent with how previous requirements have been described and whether an entity can allocate foreign exchange differences on deferred tax assets and liabilities are usually binary. IASB members asked the staff to explain the rationale in the BC. Some IASB members thought this should be a wider principle and not specific to foreign exchange differences on deferred tax assets and liabilities.

IASB decision

13 of the 14 IASB members agreed with Recommendation 5. All IASB members agreed with Recommendation 6.