Primary Financial Statements project

Keywords: Mazars, Thailand, IFRS, IASB, IAS 1, IAS 7, Primary Financial Statements

22 February 2022

Unusual income and expenses

This month, the IASB began redeliberations on unusual income and expenses, which are defined in the Exposure Draft as income and expenses with limited predictive value. The draft goes on to state that income and expenses have limited predictive value when it is reasonable to expect that income or expenses that are similar in type and amount will not arise for several future annual reporting periods.

Readers will remember that the Exposure Draft requires specific disclosures in the notes on these items:

• the amount of each item of unusual income or expenses recognised in the reporting period;
• a narrative description of the transactions or other events that gave rise to that item and the reasons why income or expenses that are similar in type and amount are not expected to arise in forthcoming reporting periods;
• the line item(s) in the statement(s) of financial performance in which each item of unusual income or expenses is included;
• if the included expenses are broken down by function of expense in the statement of profit or loss, the entity shall include a breakdown by nature of expense in the notes.

In December, the IASB tentatively decided:

• to further explore how to proceed with a definition of “unusual income and expenses”, which are key elements of financial reporting for many companies;
• to remove the phrase “limited predictive value” from the definition, and to clarify in the final standard that this is a necessary characteristic of unusual income and expenses, but not the only characteristic;
• to develop application guidance to clarify the definition of unusual income and expenses. This guidance would:
  • clarify that the definition means that unusual income and expenses can be dissimilar in type or amount from income and expenses expected in the future;
  • help an entity to assess whether similar income or expenses will arise in the future; and
  • explain that when assessing whether income and expenses are similar to those that will arise in the future, an entity must take account of the characteristics of the income and expenses, including the underlying event or transaction that gives rise to the income or expenses.

“Investing” category

At the December meeting, the IASB also discussed the definition of the new “investing” category of the statement of profit or loss and the items to be presented in this category. The Board also agreed to retain the “investing” label.

Readers will remember that the IASB had previously decided, during its redeliberations on the “financing” category, that income and expenses related to cash and cash equivalents should be presented in the “investing” category (rather than the “financing” category, as proposed in the exposure draft).

Also at the May meeting, the IASB tentatively decided to retain the requirement for entities to present a new sub-total in the statement of profit or loss, for “profit or loss before financing and income tax”. This subtotal would appear after the “investing” category (thus also including income and expenses from the “operating” category) but before the “financing” category.

This month, the IASB tentatively decided:

• to confirm that income and expenses from assets that generate returns individually and largely independently of other resources held by the entity should be classified in the “investing” category. The standard itself will not include the objective for this category, but the Basis for Conclusions will explain the reasons for presenting certain items in the “investing” category (i.e. this category provides information on returns from investments, which users of financial statements generally analyse separately from operating profit);
• to retain the application guidance on this category proposed in the Exposure Draft, but with some additional clarifications;
• to classify all income and expenses from associates and joint ventures in the “investing” category, thus in theory concluding the Board’s discussions on this topic. This means that preparers will not need to distinguish between “integral” associates and joint ventures (those that are integral to the main business activities of the entity) and “non-integral” associates and joint ventures, as originally proposed in the Exposure Draft. However, the discussions revealed that not all of the Board members were convinced by the final decision, which ultimately is a pragmatic choice.

Redeliberations are expected to continue throughout much of 2022. For example, the IASB still needs to decide on the classification of income and expenses arising from transactions that result in a change in the category in which the income and expenses generated by the assets are classified (e.g. where should an entity classify the gains and losses arising when an associate or joint venture becomes a subsidiary?).