IASB proposes broad changes focused on financial performance

Information in financial statements would be focused more on financial performance under proposals issued Tuesday by the International Accounting Standards Board (IASB).

The proposals would require more comparable information in the statement of profit or loss, as well as a more disciplined and transparent approach to the reporting of management-defined performance (non-GAAP) measures.

Under the proposals, three new profit subtotals, including “operating profit,” would be required to be provided in the statement of profit or loss. Many companies report operating profit, which is not defined by IFRS. This makes meaningful comparisons between companies difficult on this measure. The new subtotals are designed to provide better structure to the information and enable easier comparison by investors.

In addition, the proposals would require companies to discuss management performance measures in a single note to the financial statements. In this note, companies would be required to explain why the measures provide useful information and how they are calculated, and provide a reconciliation to the most comparable profit subtotal specified by IFRS.

These requirements are designed to add transparency and discipline to the use of non-GAAP measures and make it easier for investors to locate the information they need.

The proposed guidance also would require companies to disaggregate information in a way that the IASB believes would be more useful for investors. With the proposals, the IASB intends to require companies to provide better analysis of their operating expenses and to identify and explain in the notes any unusual income or expenses, using the IASB’s definition of unusual. These proposed requirements are designed to help investors analyse companies’ earnings and forecast future cash flows.

“These proposals represent a game changer in the comparability and usefulness of financial statements,” IASB Chairman Hans Hoogervorst said in a news release.

If approved, the proposals would result in a new standard that sets out general presentation and disclosure requirements while replacing IAS 1, Presentation of Financial Statements. Comments can be made at the IASB website by 30 June 2020.

— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is FM magazine’s editorial director.