Redeliberations continue on Primary Financial Statements project

Keywords: Mazars, Thailand, International Accounting Standards Board, IASB, EFRAG, Primary Financial Statements, General Presentation and Disclosures

13 March 2023 

The Board also redeliberated some of the proposals in the December 2019 General Presentation and Disclosures exposure draft, relating to the following topics:

• the requirements for aggregation and disaggregation of information;
• other comprehensive income;
• the statement of cash flows.

Below, we present the key (though still tentative) decisions taken by the IASB:

Feedback from roundtable discussions and next steps

Last autumn, the IASB held roundtable discussions with a range of stakeholders, including EFRAG. Based on the feedback from these discussions, the IASB has added four new topics to its redeliberation agenda:

• whether it should reconfirm its decision to classify income and expense from associates and joint ventures accounted for using the equity method in the “investing” category;
• whether it should develop application guidance for classifying income and expense from off-balance-sheet items in the statement of profit or loss;
• whether interest on IFRS 16 lease liabilities should be classified in the “operating” category rather than the “financing” category if the entity subleases assets as its “main business activity”;
• whether it should develop application guidance for situations where it could be appropriate to rebut the presumption that a subtotal of income and expenses included in public communications outside financial statements represents management’s view of an aspect of the entity’s financial performance and is therefore a management performance measure (MPM).

Requirements for aggregation and disaggregation of information

Readers will remember that the exposure draft set out the requirements for aggregation and disaggregation of information in the primary financial statements and the notes.

Following its redeliberations, the Board made the following (tentative) decisions:

• an entity is required to:
  • describe disaggregated amounts in a clear and understandable way that would not mislead users of financial statements;
  • be transparent about the meaning of the terms it has used and the methods it has applied to the disaggregation;

• the future standard will specify that each line item in an entity’s income statement(s) and statement of financial position must be recognised and measured in accordance with IFRS Accounting Standards, although it will permit an entity to disaggregate income and expenses into components not recognised or measured in accordance with IFRSs in the notes;
• the label “other” may only be used if the entity has not been able to find a more informative label. Furthermore:
  • if a line item labelled “other” includes an aggregation of varied material items, the entity must specify the type of items as clearly as possible, for example, “other operating expenses” or “other finance expenses”;

if a line item labelled “other” includes an aggregation of varied immaterial items, the entity must consider whether the aggregated amount is large enough that users of financial statements might question what it includes. If so, further information must be provided, as this would be material to users of financial statements. For example, the entity could (i) explain that the aggregated amount does not include any material items or (ii) explain that the amount consists of several unrelated immaterial items and give an indication of the nature and amount of the largest item. 

The Board also discussed whether to introduce an exemption to the general requirement to disaggregate material information, and tentatively decided to add an exemption that would apply to disclosures in the notes about the nature of operating expenses included in a function line item in the statement of profit or loss.

Other comprehensive income

The IASB has ultimately decided not to relabel the two categories of other comprehensive income, and to retain the current labels:

• items of other comprehensive income that will not be reclassified subsequently to profit or loss; and
• items of other comprehensive income that will be reclassified subsequently to profit or loss when specific conditions are met.

Statement of cash flows

In the General Presentation and Disclosures exposure draft, the IASB proposed to amend IAS 7 – Statement of Cash Flows to standardise the presentation of interest and dividend cash flows. IAS 7 currently permits entities (other than financial institutions) to recognise these cash flows as operating, financing or investing cash flows.

The IASB proposed that entities with “specified main business activities”, such as financial institutions, should classify dividends received (other than those from associates and joint ventures accounted for using the equity method) and interest received or paid in a single category of the statement of cash flows (either as operating, investing or financing activities).

The Board decided this month to confirm these proposals.

For entities that do not have “specified main business activities”, the exposure draft proposed that interest (and dividends) received should be classified as cash flows arising from investing activities, and interest (and dividends) paid should be classified as cash flows from financing activities.

In January, the IASB confirmed its original proposal to classify interest received in the investing category.

The IASB Update for the January 2023 meeting is available here.