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    Tuesday 26 March 2019

    IASB Update February 2019 - Primary Financial Statements (Agenda Paper 21)

    By IASB - February 2019 

    The Board met on 7 February 2019 to discuss:

    • the classification of income and expenses in the statement(s) of financial performance for financial entities, following up on discussions from the September 2018 meeting;
    • two outstanding issues on the statement of cash flows; and
    • additional proposals on aggregation and disaggregation.

    Classification of income and expenses by financial entities (Agenda Paper 21A)
    The Board considered this issue in relation to:

    1. entities that provide financing to customers as a main business activity; and
    2. entities that, in the course of their main business activities invest in assets that generate a return individually and largely independently of other resources held by the entity.

    In revising an approach decided in September 2018, the Board tentatively decided that:

            3.   an entity of the type described in (a) is required to include in operating profit:

    • expenses from financing activities and income from cash and cash equivalents relating to the provision of financing to customers; or
    • all expenses from financing activities and income from cash and cash equivalents.

    Thirteen of 14 Board members agreed and one disagreed with this decision.  

             4.   an entity of the type described in (a) shall not present the ‘profit before financing and income tax’ subtotal if the entity does not present expenses from financing activities or income from cash and cash equivalents below operating profit. This applies even when such an entity presents in the statement(s) of financial performance the unwinding of a discount on liabilities that do not arise from financing activities. All 14 Board members agreed with this decision.

             5.    an entity of the type described in (b) is required to include in operating profit, income (expenses) from investments made in the course of its main business activities. All 14 Board members agreed with this decision.

    Outstanding issues on the statement of cash flows (Agenda Paper 21B)
    The Board tentatively decided that the starting point for the indirect reconciliation of operating cash flows is the operating profit subtotal for all entities, amending its tentative decision of December 2017. All 14 Board members agreed with this decision.
    In addition, the Board tentatively decided that:

    1. all entities shall classify:
    • cash flows from dividends paid as financing cash flows; and
    • cash flows from dividends received from associates and joint ventures accounted for using the equity method as investing cash flows.

     All 14 Board members agreed with this decision.

            2.    financial entities (entities that provide financing to customers as a main business activity and/or invest in the course of their main business activities in assets that generate a return individually and largely independently of other resources) shall classify cash flows from dividends received, interest paid and interest received each in a single section of the statement of cash flows. Financial entities shall determine the section in which to classify these cash flows as follows:

    • if the entity presents related income (expenses) in a single section of the statement(s) of financial performance, the entity shall present related cash flows in that section; or
    • if the entity presents related income (expenses) in more than one section of the statement(s) of financial performance, the entity shall make an accounting policy choice regarding the section of the statement of cash flows in which to present related cash flows.

     Eleven of 14 Board members agreed and three disagreed with this decision.

    Additional proposals on aggregation and disaggregation (Agenda Paper 21C)
    The Board tentatively decided, subject to drafting improvements, to replace the guidance decided by the Board in March 2017 on the steps involved in preparing financial statements with:

    1. the description that aggregation and disaggregation involve:
    • classifying the effects of individual transactions or other events into assets, liabilities, equity, income and expenses;
    • separating assets, liabilities, equity, income and expenses into groups based on their characteristics (for example, their nature, their function, their measurement basis or another characteristic) resulting in the presentation of line items that share at least one characteristic in the primary financial statements; and
    • separating the line items presented in the primary financial statements based on further characteristics resulting in the separate disclosure of items in the notes, if those items are material; and

          2.    supporting guidance along the lines discussed in Agenda Paper 21C.

    All 14 Board members agreed with this decision.

    In addition, the Board tentatively decided to provide the following additional guidance for material balances comprised of immaterial items:

    Items presented in the primary financial statements or disclosed in the notes shall be described in a way that faithfully represents the items they aggregate. Faithful representation could be achieved by using item labels that describe the shared characteristics that form the basis of the aggregation. In producing financial statements, an entity may identify items that do not appear to share characteristics with other items and are not material but that when aggregated would result in a material balance. Labelling these items with a non-descriptive label such as ‘other’ would not faithfully represent these items without additional information. In order to faithfully represent these items, an entity shall:

    • reconsider whether the immaterial item(s) share similar characteristics with other immaterial item(s) and can be aggregated to create a material item that can be described in a manner that faithfully represents the aggregated items;
    • consider whether the aggregated items may be described in a way that faithfully represents the dissimilar items without changing the level of aggregation; and
    • if (a) and (b) are impractical, disclose information in the notes about the composition of the aggregated item, for example, ‘the balance consists of several unrelated immaterial amounts, the largest balance of which is CU10 of property maintenance expenses’.

    Thirteen of 14 Board members agreed and one disagreed with this decision.

    Next step
    The Board will continue discussing topics within the scope of the project at future Board meetings.

    For further information, please contact :

    Mohammed Yaqoob
    Global Office
    E: myaqoob@nexia.com

     View IFRS: IASB Update February 2019 here.

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