Redeliberations continue on Primary Financial Statements project

Keywords: Mazars, Thailand, IFRS, IASB, MPMs

18 July 2022

Management performance measures

In May, the IASB’s redeliberations focused heavily on management performance measures or MPMs. MPMs are measures that an entity uses in communications outside IFRS financial statements and the IASB is hoping to establish a framework for these measures, according to which certain disclosures would be required in the notes.

The redeliberations to date have confirmed the proposal in the exposure draft to introduce a list of the minimum required disclosures on all the MPMs used by the entity, to be presented in a single note to the financial statements, in order to promote transparency in financial reporting on these measures. These required disclosures will include a reconciliation between each MPM and the most directly comparable subtotal or total in the income statement.

However, further redeliberations were required on the controversial proposal in the exposure draft to require the disclosure of the income tax and non-controlling interest effects of each item disclosed in the reconciliation.

At its May meeting, the IASB tentatively decided to confirm this proposal, but to revise the method for calculating the income tax effect. The exposure draft proposed that an entity should determine the income tax effect on the basis of a reasonable pro rata allocation of the entity’s current and deferred tax in the country or countries concerned, or use another method if that would result in a more appropriate allocation in the circumstances. The IASB finally decided to permit entities to calculate the income tax effect as either:

• the tax effects of the underlying transaction(s) at the statutory tax rate(s) applicable to the transaction(s) in the relevant jurisdictions(s); or
• the tax effects as described above, with any other income tax effects related to the underlying transaction(s) to be allocated based on a reasonable pro rata allocation of current and deferred tax, or on another method that achieves a more appropriate allocation.

The addition of the first approach aims to simplify the calculation by allowing the entity to focus on the direct tax effects of the item being reconciled. However, the IASB also requested the staff to continue investigating alternative calculation methods that could improve the cost/benefit ratio for entities.

Unusual income and expenses

Redeliberations on this topic began last December.

In May, the IASB decided to label unusual income and expenses as “income and expenses with limited recurrence”, and to define them as follows: “Income and expenses have limited recurrence when it is reasonable to expect that income or expenses that are similar in type and amount will cease, and once ceased will not arise again, before the end of the assessment period.”

As a reminder, the definition proposed in the exposure draft (before the December 2021 redeliberations) was as follows: “Income and expenses with limited predictive value. Income and expenses have limited predictive value when it is reasonable to expect that income or expenses that are similar in type and amount will not arise for several future annual reporting periods.”

Thus, there have been two significant changes from the exposure draft definition:

• the definition of income and expenses “with limited recurrence” now specifically refers to income and expenses recognised in the past, rather than taking an entirely forward-looking approach;
• the predictions for the future will relate to the “assessment period”. The IASB has yet to decide on how to define this period, e.g. by linking it to the period used for budgets and forecasts, or by specifying a minimum and/or maximum number of years.

In May, the IASB also began redeliberations on the disclosures to be presented on income and expenses with limited recurrence in a separate note to the financial statements. Discussions will continue once the staff has carried out further analysis with regard to the new definition of income and expenses with limited recurrence.