Exposure draft on financial statements

Keywords: Mazars, Thailand, IFRS, IASB, COVID-19, IAS 1

27 October 2020

Readers will remember that the IASB’s exposure draft, published on 17 December 2019, primarily aims to improve the comparability and transparency of the statement of profit or loss (and, to a lesser extent, the statement of cash flows) by setting out new rules on their structure and content that are more detailed and prescriptive than those currently specified in IAS 1. The IASB is also keen to improve the transparency of disclosures in the notes, particularly those relating to unusual items (often referred to as “non-recurring”) and to alternative performance measures that correspond to subtotals of income and expenses (referred to as “management performance measures” in the exposure draft).

Even with the additional three months, time has been tight for stakeholders – especially preparers of financial statements – to consider the potential consequences of all the various proposals put forward by the IASB.

However, the IASB has put in a lot of efforts to reach stakeholders during the comment period, with further events organised even in recent weeks, such as live webinars in a range of different languages.

The first two webinars were held on 10 February and 10 June 2020 and addressed, respectively, the general principles of the exposure draft, and the structure of the statement of profit or loss (including the required categories and sub-totals). The IASB staff subsequently held a further webinar, on 9 July, dealing with disaggregation requirements, analysis of operating expenses, and disclosures on unusual income and expenses.

This webinar clarified why the IASB wishes to explicitly prohibit a “mixed” presentation of operating expenses in the statement of profit or loss (i.e. a mix of presentation by nature and presentation by function).

The IASB believes that this approach may result in “incomplete” line items in the statement of profit or loss (e.g. when an entity presents a “Cost of sales” line item and a “Depreciation” line item in the statement of profit or loss).

The webinar also gave the Board the opportunity to explain the practical impacts of the proposed requirements regarding the separate presentation of non-recurring items in the statement of profit or loss. According to the staff, this should still be possible, but only in very strictly limited cases, given the new restrictions on presentation (cf. the categories required in the statement of profit or loss, and the ban on a “mixed” presentation of operating expenses, as discussed above). The staff also emphasised that the new standard would not explicitly prohibit the separate presentation of non-recurring items in the statement of profit or loss.

A final webinar was held on 21 August to present the IASB’s proposals on “management performance measures”, or sub-totals of income and expenses that are not required by or even specified in the new IFRS.

Recordings of the four webinars are available here.