Primary Financial Statements project – Redeliberations continue (part 1)

Primary Financial Statements project – Redeliberations continue (part 1)

Tue 22 Jun 2021

At the May 2021 International Accounting Standards Board’s (IASB) meeting, the Board members continued their redeliberations on the proposals set out in the exposure draft: General Presentation and Disclosures (ED), which was published in December 2019 (and was open for comment until 30 September 2020).

For a summary of the original proposals, please refer to our previous blog article: Substantial changes have been proposed regarding the reporting of financial performance under IFRS, leading to a proposed new IFRS that will replace IAS 1

For a summary of the redeliberations to date, please refer to our previous blog article: Primary Financial Statements project – Redeliberations begin by the IASB on the exposure draft: General Presentation and Disclosures that propose substantial changes to reporting financial performance

May meeting – Summary of discussions

This second redeliberations meeting discussed two topics:

  1. Financing category – The definition of the “financing” category for companies that do not provide financing to their customers or invest in financial assets as part of their main business activities (banks and insurance companies will be discussed separately later); and
  2. Statement of profit or loss – The presentation of a subtotal for “profit or loss before financing and income tax”.

Financing category – Definition for non-financial institutions

The IASB has tentatively decided to:

  • retain the current definition of financing activities and therefore not amend IAS 7 Statement of Cash Flows; and
  • remove the existing definition of “financing activities” being proposed and to replace it with a simpler and clearer approach. In conjunction, the items to be presented within the “financing” category of the statement of profit or loss will be redefined to include the following:  
    • all income and expenses from liabilities arising from transactions that involve only the raising of finance; and
    • interest income and expenses from other liabilities (such as the interest component of pension liabilities and the unwinding of discounts on long term liabilities).

Statement of profit or loss – Presentation of subtotal for profit or loss before financing and income tax

The IASB has tentatively decided to:

  • require entities to present a new subtotal in the statement of profit or loss, namely “profit or loss before financing and income tax”, thus creating a clear distinction between the “operating”, “integral associates and joint ventures” and “investing” categories” (above this sub-total) and the “financing” and “income tax” categories (below this sub-total);
  • retain a separate “investing” category within the statement of profit or loss (with the exact definition to be discussed at a later date), in addition to the two categories of “operating” and “financing”. The objective of the investing category is to communicate information about returns from investments that are generated individually and largely independently of other resources held by the entity; and
  • require entities to classify income and expenses related to cash and cash equivalents in the “investing” category. This therefore aligning the classification of income and expenses from cash and cash equivalents and from short-term investments within the same category (as opposed to classification of income and expenses from cash and cash equivalents within the financing category as originally proposed). In practice, this means that entities would no longer be permitted to include a “cost of net financial debt” subtotal in the statement of profit or loss.