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Project Updates
Financial Statement Presentation—Joint Project of the IASB and FASB
Last Updated: February 1, 2010 (Updated sections are indicated with an asterisk *)
This project update summarizes the project activities and decisions of the IASB and FASB (the boards). It was prepared by the staff and is for the information and convenience of the boards’ constituents. All decisions of the boards are tentative, may change at future board meetings, and do not change current accounting and reporting requirements. Decisions of the boards become final only after extensive due process.
Project ObjectiveDue Process Documents
*Decisions Reached at Last Meeting
*Summary of Decisions Reached to Date
*Next Steps
*Board Meeting Minutes and Public Meeting Information
Field Tests and Research Study
*Working Groups
Background Information
Contact Information
Project Objective
The purpose of this joint project is to establish a standard that will guide the organization and presentation of information in the financial statements. The results of this project will directly affect how the management of an entity communicates financial statement information to users of financial statements, such as present and potential equity investors, lenders, and other creditors. The boards’ goal is to improve the usefulness of the information provided in an entity’s financial statements to help users make decisions in their capacity as capital providers.
In their Phase B discussions, the Boards developed two core principles for financial statement presentation based on the objectives of financial reporting and the input the boards received from users of financial statements and from members of their advisory groups. Those proposed principles state that information should be presented in the financial statements in a manner that:
- Portrays a cohesive financial picture of an entity’s activities. A cohesive financial picture means that the relationship between items across financial statements is clear and that an entity’s financial statements complement each other as much as possible.
- Disaggregates information so that it is useful in predicting an entity’s future cash flows. Financial statement analysis aimed at objectives such as assessing the amount, timing, and uncertainty of future cash flows requires financial information that is disaggregated into reasonably homogeneous groups of items. If items differ economically, users may wish to take that into account differently in predicting future cash flows.
Due Process Documents
Phase B
On October 16, 2008, both boards published for public comment a discussion paper, Preliminary Views on Financial Statement Presentation. The FASB discussion paper and the IASB discussion paper are the same except for differences in style/format. The comment period ended on April 14, 2009.
View Comment Letters
A larger version of the illustrative statement of financial position reconciliations (found on pages 105 and 106 of FASB discussion paper and on pages 156–162 of the IASB discussion paper) that will print on two pages of legal size (8.5" × 14") paper is available at www.fasb.org/draft/appb_p105-106.pdf
The discussion paper is the result of more than two years of discussion by the boards and consultation with the project’s advisory groups, the Joint International Group and the Financial Institutions Advisory Group, and other interested parties on the fundamental issues related to financial statement presentation.
The FASB held a webcast, Proposed Improvements to Financial Statement Presentation, on January 27, 2009 to discuss the October 2008 discussion paper. The webcast was moderated by FASB member Marc Siegel; panelists were Peter Bridgman, Senior Vice President and Controller of PepsiCo, Inc; Greg Jonas, Managing Director of Moody’s Investors Service; Joe Joseph, Managing Director at Putnam Investments; and Kim Petrone, Senior Project Manager at the FASB. Access the archived event
Access the IASB Web presentation introducing the discussion paper
A “snapshot” of the boards’ preliminary views also was published on October 16, 2008.
Phase A
The boards completed their deliberations on Phase A in December 2005. On March 16, 2006, the IASB published its Phase A exposure draft, Proposed Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation. The FASB decided to consider phases A and B issues together and, therefore, did not publish an exposure draft on phase A. After considering the responses to its exposure draft, the IASB issued a revised version of IAS 1 in September 2007. The revisions to IAS 1 affected the presentation of changes in equity and the presentation of comprehensive income, bringing IAS 1 largely into line with FASB Statement No. 130, Reporting Comprehensive Income (Statement 130).
*Decisions Reached at Last Meeting (Joint Meeting January 19, 2010, IASB Meeting January 20, 2010, and FASB Meeting January 27, 2010)
Joint Meeting (January 19)At their January joint meeting, the boards continued their deliberations on the proposals in the discussion paper Preliminary Views on Financial Statement Presentation. Specifically, the boards considered disaggregation by function and nature and segment disclosures (agenda paper 7A).
Background
The discussion paper proposed that within each category on the statement of comprehensive income, an entity should disaggregate its items of income and expense by function. Each of these functions should be further disaggregated by nature to the extent that such by-nature information enhances the usefulness of the statement of comprehensive income in predicting an entity's future cash flows. If that by-nature presentation is impractical on the face of the statement of comprehensive income, an entity should present the information in the notes to financial statements.
The discussion paper also proposed that if, in the opinion of management, presenting disaggregated information by function does not provide relevant information, an entity can disaggregate its items of comprehensive income by their nature within each category on the statement of comprehensive income.
In October 2009, the boards tentatively decided to retain the discussion paper proposal that an entity should disaggregate income and expense items by nature and by function. Furthermore, an entity with more than one reportable segment should present that disaggregated information in its segment note, while an entity with only one reportable segment should present that disaggregated information on its statement of comprehensive income.
Tentative decisions
At their January joint meeting, the boards tentatively decided that the exposure draft:
- will specify that an entity with only one reportable segment may present its disaggregated by-nature information in a single note disclosure, rather than presenting that information on the statement of comprehensive income. An entity that presents its by-nature information in a note disclosure must also include its by-function information in the same note.
- will specify that an entity with more than one reportable segment must present its disaggregated by-nature information in its segment note, and must also include its by-function information in the same note.
- will specify that an entity that disaggregates income and expense items by both function and nature in the notes to financial statements should present its by-function information on the statement of comprehensive income.
- will retain the discussion paper proposal that an entity should disaggregate its income and expense items in a manner that presents useful information for assessing the amount, timing and certainty of future cash flows. Consequently, if disaggregation by function does not enhance the usefulness for that purpose of the information on the statement of comprehensive income, an entity should instead disaggregate its income and expense items by nature only.
- will require an entity that presents by-nature income and expense information in its segment note to classify items consistently between the statement of comprehensive income and the segment note.
- will require an entity to present information about its operating segment activities that do not meet the criteria to be presented as a reportable segment separately from information about its corporate activities;
- will require an entity to reconcile the operating profit (loss) of its reportable segments to its consolidated operating profit presented on the statement of comprehensive income.
The Board continued its deliberations on the proposals in the discussion paper Preliminary Views on Financial Statement Presentation. Specifically, the Board considered:
- segment disclosures (joint meeting agenda paper 7A);
- financial services entity issues (joint meeting agenda paper 7B); and
- costs and benefits (joint meeting agenda paper 7C).
The Board continued its discussion from the February 19 joint meeting on possible amendments to IFRS 8 Operating Segments to accommodate the core presentation principles of cohesiveness and disaggregation. The Board decided to not make any amendments to IFRS 8 other than the amendments to which they had tentatively agreed at the joint meeting.
Financial services entity issues
The Board considered whether, and if so to what extent, the exposure draft on financial statement presentation should be applied by a financial services entity. The Board agreed that many of its tentative decisions to change proposals in the discussion paper address the concerns expressed by financial services entities. The only tentative decision that the Board specifically discussed that related to a financial services entity is the requirement to present a direct method statement of cash flows. The Board discussed different ways in which a financial services entity might present cash flow information in the financial statements. The Board asked the staff to do more research and outreach on this issue for discussion at a future meeting.
Costs and benefits
The Board was provided with a summary of the information received about the overall costs of the proposed presentation model. In prior meetings, the IASB and the FASB have discussed both the costs and benefits of individual aspects of the proposed presentation model. The boards have made a number of tentative decisions that should reduce the costs of implementing the proposed model but retain its expected benefits. The Board asked the staff to continue its outreach on the changes proposed for preparing a direct method cash flow statement. The Board did not ask for any other cost/benefit information prior to issuing the exposure draft.
Net debt information
The Board continued its discussion on net debt from the September 2009 meeting. In September, the IASB had expressed an interest in presenting information about net debt in the notes to financial statements.
At the January 2010 meeting, the Board tentatively decided to require the analysis of changes in specific line items (all the line items in the debt category, cash, any short-term investments, and finance leases) to be included in a single note disclosure. These line items typically constitute what users of financial statements sometimes refer to as net debt.
FASB meeting (January 27)
At its meeting today, the Board finished discussing the remaining issues from its January 19, 2010 joint meeting with the IASB. Specifically, the Board addressed:
- Remaining issues related to segment disclosures
- Financial services entity issues
- Costs and benefits.
At their joint meeting in January, the FASB and the IASB made the following decisions related to segment disclosures. They decided that the Exposure Draft:
- Will specify that an entity with more than one reportable segment must present its disaggregated by-nature information in its segment note and must also include its by-function information in the same note
- Will require an entity that presents by-nature income and expense information in its segment note to classify items consistently between the statement of comprehensive income and the segment note
- Will require an entity to present information about its operating segment activities that do not meet the criteria to be presented as a reportable segment separately from information about its corporate activities
- Will require an entity to reconcile the operating profit (loss) of its reportable segments to its consolidated operating profit presented on the statement of comprehensive income.
- A measure of operating cash flow. An entity would also be required to reconcile the sum of operating cash flows of its reportable segments to operating cash flow as reported in the statement of cash flows.
- A measure of liabilities if that amount is reported to the chief operating decision maker
- A measure of operating assets and a measure of operating liabilities.
The Board considered whether and to what extent the Exposure Draft on financial statement presentation should be applied by a financial services entity. The Board agreed that many of its tentative decisions to change proposals in the Discussion Paper address the concerns expressed by financial services entities. The only tentative decision that the Board specifically discussed that related to a financial services entity is the requirement to present a direct method statement of cash flows.
The Board discussed different ways in which a financial services entity might present cash flow information in the financial statements. The Board asked the staff to provide more information about how an entity might report cash flows related to deposit taking activities in a direct method statement of cash flows.
Costs and benefits
The Board discussed a summary of the information received about the overall costs of the proposed presentation model. In prior meetings, the Boards have discussed both the costs and the benefits of individual aspects of the proposed presentation model. The Boards have made a number of tentative decisions in deliberations that should reduce the costs of implementing the proposed model and retain its expected benefits.
The Board asked the staff to discuss the costs of implementing the proposed presentation model with enterprise software providers.
*Summary of Decisions Reached to Date (as of January 27, 2010)
Phase B:
See a summary of tentative decisions during deliberation of the discussion paper.
Phase A: Summary of Decisions as of September 30, 2007
*Next Steps
The staff and members of the boards will meet with the project’s working groups (the Joint International Group and the Financial Institution Advisory Group) on February 12, 2010 in Norwalk (some will participate by video from London). They will discuss the substantive changes to the discussion paper and possible transition approaches. They also will discuss how to assess the costs and benefits of the presentation model.
At the February joint meeting, the boards plan to address application guidance for analysis of changes in significant asset and liability line items, the new subcategory in operating and classification of assets and liabilities related to equity financing, how a financial services entity should present cash flow information, and a number of miscellaneous issues. The boards also will discuss the issues on which they have reached different tentative decisions. The only remaining issue to discuss is transition, which the boards will discuss in March. .
The deliberations in February will lead to publication of an exposure draft of a proposed standard. The plan is to publish that exposure draft in April/May 2010.
In February and March, the FASB will address how the decisions reached in this project should be applied by nonpublic entities as well as confirm their decisions from Phase A of the project that will be included in the Exposure Draft.
*Board/Other Public Meeting Information
Field Tests and Research Study
During the 6-month comment period on the discussion paper, 30 entities participated in a field test. As part of the field test, participant companies recast two years of financial statements using the principles and application guidance in the discussion paper and completed a survey about that recasting exercise. A summary of the survey responses is provided as part of the July 2009 joint meeting papers.
At board meetings in September 2009, the boards discussed the analyst portion of the field test at Board meetings and the results of an experimental study on the proposed presentation model that was conducted by the Financial Accounting Standards Research Initiative (FASRI).
Information on both the analyst field test and the FASRI study are available in September 2009 meeting materials.
*Working Groups
To further their research, the boards and staff have been seeking input informally from the following groups on a regular basis:
The Joint International Group (JIG) on financial statement presentation was formed in 2005 to help the boards and staffs identify issues to be considered in this project and develop proposed solutions. The JIG consists of senior professionals with extensive experience in and responsibility for the preparation, analysis, audit, and regulation of financial statements. The JIG does not include members from the financial institution preparer or user community. JIG Members
The boards formed a Financial Institution Advisory Group (FIAG) in September 2006 to help them address presentation issues from the perspective of those who analyze and prepare financial institution financial statements. FIAG Members
The boards met with members of the JIG in January and June, 2005 and September 2006. [Meeting Materials]
Board members and staff met with members of both the JIG and the FIAG in September 2007. View a summary of that meeting and meeting materials.
Board members and staff met with members of both the JIG and the FIAG on July 27, 2009, in London. View agenda and materials from that meeting, as well as links to audio files.
Board members and staff will meet with members of both the JIG and the FIAG on February 12, 2010 in Norwalk. The agenda and materials for that meeting will be available on the boards websites on or before February 8.
Background Information
In 2001, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) added to their respective agendas a project on reporting financial performance and conducted those projects independently of one another. In 2004, the boards agreed that they should conduct a project of this nature jointly to promote the convergence of accounting standards used internationally. The FASB and IASB are sharing staff resources and research for this joint project. The joint project team consists of staff from the FASB, the IASB, and the ASBJ (Accounting Standards Board of Japan).
In agreeing to pursue their similar projects jointly, the boards agreed to take a fresh look at the presentation of information in financial statements. The joint project has an expanded scope beyond presentation and display of items of income and expense; it addresses presentation and display on the face of the financial statements that constitute a complete set of financial statements. In April 2004, the boards decided to approach the project in three phases:
- Phase A would address the statements that constitute a complete set of financial statements and the periods for which they are required to be presented.
- Phase B would address more fundamental issues relating to presentation and display of information in the financial statements, including aggregating and disaggregating information in each primary financial statement, defining totals and subtotals, and reconsidering the use of a direct or an indirect method of presenting operating cash flows.
- Phase C would address the presentation and display of interim financial information in U.S. generally accepted accounting principles (GAAP). The IASB also may reconsider the requirements in IAS 34, Interim Financial Reporting.
Paper explaining the history of the project (an agenda paper from January 2005 JIG meeting)
Summary of User Interviews, FASB Staff Paper, February 2002
FASB Proposal for a Project on Reporting Financial Performance (August 17, 2001)
Background Information related to the August 2001 FASB Proposal
Comment Letters on the August 2001 FASB Proposal
Contact Information
Kim Petrone
FASB Senior Project Manager
krpetrone@fasb.org
Denise Gomez
IASB Project Manager
dgomez@iasb.org