Presentation of financial statements – a new IFRS on the horizon

In December 2019, the IASB issued extensive proposals which aim to improve how information is communicated in the financial statements, with a particular focus on the statement of profit or loss. Central to the proposals is the suggestion that IAS 1 Presentation of Financial Statements is replaced with a new standard that would comprise:

  • new requirements on presentation and disclosure in the financial statements; and
  • requirements brought forward from IAS 1 (with only limited changes to the wording).

This is a significant project which will affect all companies reporting under IFRS. It is unsurprising then that the IASB’s exposure draft is also significant in size reaching over 100 pages. It is also accompanied by two similar sized documents, one outlining the basis for conclusions and another providing illustrative examples. Thankfully the IASB has also issued a shorter overview document which is well worth a read.

The aim of this blog is to briefly introduce some of the key proposed new presentation requirements within the new standard. I will be examining the proposals in more detail in the coming months.

Proposed new presentation requirements – some highlights

Structure of statement of profit or loss

It is proposed that an entity would present the following new subtotals in the statement of profit or loss:

  • operating profit or loss;
  • operating profit or loss and income and expenses from integral associates and joint ventures; and
  • profit or loss before financing and income tax.

Management performance measures

The new standard would define ‘management performance measures’ and require an entity to disclose information about management performance measures in a single note in the financial statements. The standard would also specify the information an entity would be required to disclose about management performance measures including, for example, a reconciliation to the most directly comparable total or subtotal specified by IFRS.

It is proposed that management performance measures would be defined as ‘subtotals of income and expenses that: (a) are used in public communications outside financial statements; (b) complement totals or subtotals specified in IFRS Standards; and (c) communicate to users of financial statements management’s view of an aspect of an entity’s financial performance.'

Unusual income and expenses

A definition for ‘unusual income and expenses’ would be introduced and a requirement for entities to disclose unusual income and expenses in a single note. Application guidance would be available to help an entity identify its unusual income and expenses.

Aggregation and disaggregation

The new standard would outline principles and general requirements on the aggregation and disaggregation of information applicable both to presentation in the primary financial statements and disclosure in the notes. 

Nature of expense method

Entities would continue to be required to present in the statement of profit or loss an analysis of operating expenses using either the nature of expense method or the function of expense method. The new standard would describe the factors to consider when deciding which method of operating expense analysis should be used.

An entity that presents an analysis of operating expenses using the function of expense method in the statement of profit or loss would be required to disclose in a single note an analysis of its total operating expenses using the nature of expense method.

Next steps

As noted above, the Financial Reporting Faculty will be assessing closely these proposals in the coming months and will monitor this important project over time, with a view to providing guidance to members as required.

Comments to the IASB are due by 30 June 2020. We are also interested to get your views. If you have any comments on the IASB proposals then please contact us on frfac@icaew.com.

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