Project Updates

Financial Statement Presentation—Joint Project of the IASB and FASB

Last Updated: November 3, 2009 (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 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:

1. 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.
    
2. 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

View Comment Letter Summary 

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 October 27, 2009)

1. Replace the proposed reconciliation schedule with an analysis of the changes in balances of all significant asset and liability line items. The analysis will explain the nature of the transactions and other events that gave rise to a change in the account balance. Each significant asset and liability line item analysis should separately distinguish the following components:
   1. Changes due to cash inflows and cash outflows
   2. Changes resulting from noncash (accrual) transactions that are repetitive and routine in nature (for example, credit sales, wages, material purchases)
   3. Changes resulting from noncash transactions or events that are nonroutine or nonrepetitive in nature (for example, acquisition or disposition of a business)
   4. Changes resulting from accounting allocations (for example, depreciation)
   5. Changes resulting from accounting provisions/reserves (for example, bad debts, obsolete inventory)
   6. Changes resulting from remeasurements.
2. Present information about remeasurements in the financial statements. The FASB tentatively agreed to require disaggregation of remeasurements on the face of the statement of comprehensive income (SCI) in a columnar format. The IASB expressed a preference for presenting information about remeasurements in the notes to financial statements. The IASB agreed to reconsider the issue after the staff analyze current disclosures of remeasurement information and disclosures being considered in other projects.

The Boards discussed modifying the proposed definition of a remeasurement. The Boards asked the staff to further refine the definition.

1. Retain the proposal that an entity be required to present its cash flows directly in the statement of cash flows (SCF); that is, present line items for cash receipts and payments in each section (and category) in the SCF and specify that an entity should disaggregate its SCF information such that significant or material cash flows are apparent to a user of the entity’s financial statements.
2. Require the presentation of an indirect reconciliation of operating income to operating cash flows in the notes to financial statements.
3. Retain the proposal that an entity disclose all relevant information about its noncash activities unless that information is presented elsewhere in the financial statements.
4. Require disclosure of information about repatriation limitations and other restrictions on cash (and short-term investments similar to cash) in the notes to financial statements.

1. The business section should have two defined categories: operating and investing (a change from their tentative decisions in September). Those categories require an entity to make a distinction between business activities that are part of an entity’s day-to-day business activities (and the business activity generates revenue through a process that requires the interrelated use of the net resources of the entity) [operating category] and business activities that generate non-revenue income (and no significant synergies are created from combining assets) [investing category]. As a result of that tentative decision, the definitions of operating and investing categories will differ from what was proposed in the Discussion Paper.
2. The financing section will include items that are part of an entity’s activities to obtain (or repay) capital and consist of two categories: debt and equity (a change from their decisions in September).
   1. The debt category will include liabilities where the nature of those liabilities is a borrowing arrangement entered into for the purpose of raising (or repaying) capital.
   2. The equity category will include equity as defined in either IFRS or U.S. GAAP.
3. The financing section will not include a treasury category—that is, cash and short-term financial assets (or financial liabilities) used as a substitute for cash will be included in the business section.

*Summary of Decisions Reached to Date (as of October 30, 2009)

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 boards will continue to deliberate the issues addressed in the discussion paper through January 2010. Those deliberations will lead to publication of an exposure draft of a proposed standard. The plan is to publish that exposure draft in April 2010.

*Board/Other Public Meeting Information

• Meeting Materials and Minutes

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.

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:

1. 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.
    
2. 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.
    
3. 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

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