International Accounting Standards Board proposes new standard on general presentation and disclosures in financial statements: On the 17th December 2019, the International Accounting Standards Board published an exposure draft (ED) of a new standard (General Presentation and Disclosure) that is intended to replace IAS 1 (Presentation of Financial Statements). The proposed new standard will attempt to make company performance comparisons more straight forward for investors.
-
Profit
At least 9 different definitions of operating profit were identified in a sample of 100 companies analysed by IASB. The proposed new standard will attempt to make company performance comparisons of profit easier for investors.
Operating profit will be more strictly defined and two other new measures of earnings:
• operating profit and income and expenses from integral associates and joint ventures
• profit before financing and income tax
The proposed new standard will NOT define EBITDA, but will use ‘operating profit or loss before depreciation and amortisation’, which would provide similar information to many of the EBITDA measures that are currently being used and is more clearly understood. It will require all entities to present an operating profit or loss subtotal in the statement of profit or loss, which is defined as profit from continuing operations before tax and before investing (defined as returns from investments that are generated individually and largely independently of other resources held by an entity), financing (defined as income and expenses from assets and liabilities related to an entity’s financing), and the share of profit of integral associates and joint ventures; whether an item is ‘unusual’ does not affect whether it is included in operating profit; (there is a separate proposed approach to operating profit for financial entities). It will also require entities to present separately ‘integral’ and ‘non-integral’ associates and joint ventures in statements of financial performance and cash flows, where a significant interdependency between an entity and an associate or joint venture would indicate that the associate or joint venture is integral to the main business activities of the entity (the definition would be supplemented with indicators for determining whether a joint venture or associate is ‘integral’ or ‘non-integral’).
-
Management Performance Measures
Management Performance Measures (both non-financial performance measures and / or financial performance measures) will be accompanied by disclosures in the notes offering a description of:
• why the measure provides management’s view of performance,
• how the measure has been calculated,
• how the measure provides useful information about an entity’s financial performance,
• a statement that the measure provides management’s view of an aspect of the entity’s financial performance,
If there is a change in how the Management Performance Measure is calculated, an explanation would be provided to help users understand the reasons for and effect of the change
-
Statement of cash flows
A number of targeted improvements to improve the comparability of cash flow statements between entities are proposed.
On the 6th January 2020, the Financial Times estimated that these standards are unlikely to become effective until the start of 2023 at the earliest.