IAS 7 — Changes in liabilities arising from financing activities

Date recorded:


The Committee received a submission setting out feedback from users of financial statements ('investors') in relation to the disclosure relating to changes in liabilities arising from financing activities applying IAS 7. The submission does not direct to a particular question or a specific fact pattern but it raises the concern that the disclosure does not always meet the information needs of investors. The submission sets out the observation of (i) an inconsistency in the definitions of 'debt' or 'net debt' used as the basis for the IAS 7 reconciliation, (ii) insufficient disaggregation and inadequate explanation, and (iii) presentation or disclosure errors, and as such the disclosure objective in IAS 7 may not be met in certain practical scenarios.

Staff analysis

The investors observe that some entities define 'net debt' in a way which is inconsistent with financial liabilities in the statement of financial position. The staff consider that IAS 7 already set out clear requirements of linking up items in IAS 7 reconciliation to other areas of the financial statements including the statement of financial position and statement of cash flows, and IAS 7 permitted disclosure of additional information separately in the reconciliation.

The investors feedback that information in IAS 7 reconciliations is not always sufficiently disaggregated to enable investors to link items included in the reconciliation to other areas of financial statements, for example some entities abuse the category of 'other changes'. Investors also found difficulties in understanding the accounting treatment and nature of items in the IAS 7 reconciliation. The staff analyse the requirements in IAS 1 Presentation of Financial Statements and IAS7:BC10 and consider that they already provide an adequate basis for an entity to apply judgement and determine the appropriate level of disaggregation in IAS 7 reconciliation, as well as any explanation required to meet the disclosure objective in IAS 7.

Staff recommendation

The staff recommended that the that a tentative agenda decision be published stating that the Committee concluded that the requirements in IFRS Standards provide an adequate basis for an entity to disclose information about changes in liabilities arising from financing activities that enables investors to evaluate those changes.


Before starting the discussion, the staff highlighted that this is the first time the staff have been approached directly by investors. Many Committee members thought the tentative agenda decision was strange because it has nothing about the application of IFRS Standards and much of the content is merely repeating the wording in IAS 7. They thought it was not necessary to use an agenda decision to express the views of investors. The issues in the tentative agenda decision are best dealt with by regulators and the IFRS Interpretations Committee cannot answer those questions. Moreover, the Committee is not in a positon to comment on whether standard-setting is required based on the agenda decision. Such an assessment requires more research to determine how big the issue is.

Some Committee members were also curious about what view the enforcers The tentative agenda decision stated that investors are looking for a net debt reconciliation. One Committee member shared his experience, saying that net debt reconciliations are provided in the annual report but not as part of the financial statements. It is prepared using non-GAAP measures and auditor would not allow it to be included in the financial statements. He said he was fine with the agenda decision but that the matter should be taken to the Board. on the issue also relates to the project on primary financial statements and non-GAAP measures.

A Committee member suggested investors should communicate through investors relations/roadshows to their specific investors rather than to IFRIC. Different investors will have different information needs – e.g. financial institutions or insurance companies may not view net debt is a key disclosure but for some manufacturing company net debt might be important.

The staff explained that in 1999 UK GAAP required a net debt reconciliation and this is likely to be why some investors want it. A few Committee members suggested that education material to illustrate best practices could be developed in addition to the tentative agenda decision. The staff also explained that paragraph 5.14 of Due Process Handbook states IASB and IFRIC are responsible for concerns expressed by investors about poorly specified disclosure requirements. Some Committee members questioned whether the disclosure requirements are clear in terms of the disclosure objective and whether there are compliance issues because of poorly specified disclosures.

The Chair acknowledged the concerns from the Committee members and asked the staff to modify the wording of the tentative agenda decision for further discussion on the second day of the meeting.

The revised tentative agenda decision has changed the wording in the issue of the subject matter as the investors' concern on whether the disclosure requirements sufficiently meet the disclosure objectives in IAS 7, as well as the conclusion corresponds with the issue, which is more specific to the question.

The Committee decided, by a majority of votes, adopt the revised tentative agenda decision, subject to editorial changes.

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