Ongoing IASB deliberations on presentation of financial statements

Keywords: Mazars, Thailand, IFRS, IASB, Financial Statements, IAS 7, IAS 1

23 November 2021

While not all the topics on the agenda could be discussed (including the presentation of the share of net income of equity-accounted companies in the income statement), the IASB took a number of still-tentative decisions, pending overall validation of the content of the future standard.

The IASB once again considered:

• management performance measures, following its initial discussions in March 2021 and June 2021;
• the principles of aggregation and disaggregation and their application in the primary financial statements and the notes, following first redeliberations in April 2021.

Definition of management performance measures

The IASB is making gradual progress on management performance measures and is likely to require several meetings to complete its deliberations on this crucial topic (e.g. consideration of the interaction between management performance measures and segment reporting under IFRS 8).

Readers will recall that in previous meetings, the IASB confirmed that disclosures in respect of management performance measures should be made in the notes to the financial statements, and that it had no wish to extend their scope (except where a numerator or a denominator of a ratio meets the definition of a management performance measure).

In September, the IASB began work to redefine management performance measures considering the proposal in the Exposure Draft, according to which:

Management performance measures are subtotals of income and expenses that: 

a) are used in public communications outside financial statements;

b) complement totals or subtotals specified by IFRS Standards; and

c) communicate to users of financial statements management’s view of an aspect of an entity’s financial performance.”

Many stakeholders who responded to the exposure draft viewed the concept of “public communications” in the first of these points as unclear and too broad.

The September meeting discussed this topic without asking the Board to vote on any decisions. The IASB intends to explore further how to clarify the scope of public communications, considering the objective of proposals for management performance measures and the extent to which detailed guidance is needed to meet that objective.

In future the IASB will also discuss how to clarify that an entity is not required to repeat disclosures provided in the interim financial statements in the annual financial statements or to review historical communications related to previous financial statements to identify management performance measures.

Turning to the second aspect of the definition, the IASB tentatively decided to amend the definition of management performance measures:

• to remove the reference to complementing totals or subtotals specified by IFRS Standards. This would be only presented in the Basis for Conclusions, to avoid creating confusion as to the IASB’s intention: if the disclosures complement the information required by IFRS standards this is not in itself a criterion for identifying management performance measures; and
• to state that totals and subtotals specified by IFRS Standards are not management performance measures.

Members of the IASB also discussed item (c) above relative to the definition of management performance measures, without taking any decisions at this stage.

Principles of aggregation and disaggregation and their practical application

The IASB also continued to deliberate on the principles of aggregation and disaggregation of information in the primary financial statements and the notes, following an initial decision in April 2021 that led the Board to strengthen the principle of disaggregation of information by emphasising that a single dissimilar (non-shared) characteristic between items would be sufficient to require an entity to disaggregate information about those items if that information were material.

During the September 2021 meeting, the IASB essentially decided to explain, in the final version of the standard, that:

• the purpose of aggregation (to obtain classes of assets and liabilities, etc.) is to make information understandable;
• the requirement to disclose such classes applies to all material classes. Hence any class of aggregated items should be disaggregated if the resulting disaggregated classes provide material information. Consistent with the April decision, material classes might be identified because the items have a single dissimilar characteristic.

The IASB also tentatively decided to require an entity to explain, in qualitative terms only, how a class of items disclosed in the notes is included in line items in the primary financial statements. This information must enable users of financial statements to understand how the amounts presented in the notes relate to the line items in the primary financial statements.

Finally, the IASB tentatively decided to publish application guidance to help entities to apply the principles of aggregation and disaggregation in practice, both in the primary financial statements and in the notes.

For the primary financial statements, the IASB tentatively decided that the application guidance will state that, in general, the more diverse the items in a class (that is, the more dissimilar characteristics the items have in addition to the shared characteristics that form the basis for the class) the more likely it would be that disaggregation based on some of those dissimilar characteristics would result in a more understandable overview.

In the case of the notes, the IASB tentatively decided that the application guidance will state that, in general, the more diverse the items in a class (that is, the more dissimilar characteristics the items have in addition to the shared characteristics that form the basis for the class) the more likely it would be that disaggregation based on some of those dissimilar characteristics would result in material information.