by Hassan Mohamed

The International Accounting Standards Board (IASB) has published an Exposure Draft (ED) ‘General Presentation and Disclosures’ (ED/2019/7) in December 2019, which intends to supersede IAS 1 ‘Presentation of Financial Statements‘. The ED also proposes amendments to other IFRSs to reflect the new standard. Some of the current requirements of IAS 1 would be moved to IAS 8 and IFRS 7 without amendment. Whilst IAS 7, IFRS 12, IAS 33 and IAS 34 will be amended to reflect the changes.

The IASB extended the commenting period for the exposure draft from 30 June 2020 to 30 September 2020.

The ED was developed as part of IASB’s Primary Financial Statements project, which is part of the IASB’s work on better communication in financial reporting. Consequently, IASB’s objective of the new Standard is to improve how information is communicated in the financial statements, with an emphasis on information concerning performance in the statement of profit or loss.

In the ED, IASB has proposed three key amendments to the existing IAS 1 Presentations of Financial Statements. Foremost, IASB proposes companies to present the new subtotals in the statement of profit or loss, resulting, incomes and expenses to be classified into four defined categories each of which reflects a different aspect of the company’s financial performance, providing more relevant information for the users.

Figure 1 – Summary of statement of profit or loss

The operating category and the ‘operating profit’ subtotal would include information about income and expenses from a company’s main business activities.

Integral associates and joint ventures category would include related income and expenses from those associates and joint ventures whose activities are closely related to the company’s main business activities and who do not generate a return individually and largely independently of the other assets of the company.

The investing category includes returns from investments including the share of profit or loss of non-integral associates and joint ventures. Non-integral associates and joint ventures generate returns individually and largely independently of other assets of the company.

The financing category includes income and expenses from cash and cash equivalents, income and expenses on liabilities arising from financing activities and interest income and expenses on other liabilities.

Secondly, IASB proposes principles and general requirements on the aggregation and disaggregation of information, which would be applicable both to presentation in the primary financial statements and disclosures in the notes. The key improvement in the proposed new Standard which was not addressed in IAS 1 would be the requirement for companies to disclose unusual income and expenses.

Third key change proposed by IASB is to introduce a definition of ‘management performance measures’ and requires companies to disclose them in a single note along with disclosures aimed at improving their transparency.

The ED does not contain a proposed effective date. However, it is expected that the standard will become effective approximately 18-24 months after being published.

The exposure draft is available on the IASB website.