Key IASB proposal needs changes, AICPA committee says

Proposed IFRS guidance for how presentation and disclosures should appear in financial statements needs more structure and guidance, according to a comment letter submitted Thursday by the AICPA Financial Reporting Executive Committee (FinREC).

In comments on the International Accounting Standards Board’s December 2019 exposure draft, General Presentation and Disclosures (Primary Financial Statements), FinREC said a final standard should have more structure and guidance to ensure appropriate levels of:

  • Operability and consistency within a company’s reporting, and
  • Comparability to other companies’ reporting.

FinREC applauded the IASB for its efforts to have financial statements provide information on the performance of business, said Bill Schneider, CPA, CGMA, the chair of FinREC’s comment letter task force. But overall, Schneider said, the IASB missed the mark in some areas while creating some solutions that might cause problems that are more vexing than the challenges they are attempting to solve.

“We expressed several concerns,” Schneider said in an interview. “We think there’s some definite possibilities in what they’re doing and some good ideas that could be further developed. But we think there is some more work that needs to be done before this is ready for any final standard.”

FinREC also commented on specific guidance that was proposed in the ED.

Unusual income and expenses, and management performance measures. The proposals to discretely disclose unusual items and management performance measures in audited financial statements would not provide a significant benefit to users of the financial statements, FinREC wrote.

Unusual items likely otherwise would be contained in management performance measures or disclosed as a result of other guidance, according to FinREC. Management performance measures don’t need to be included in the audited financial statements to enable some level of assurance to be provided on them, FinREC wrote.

The definition of unusual items also was similar to that of “extraordinary items”, which FASB removed from US GAAP in 2015. The extraordinary items definition came under fire in 2001 after FASB’s Emerging Issues Task Force determined that the terrorist attacks on the World Trade Center and elsewhere that year were not extraordinary items for financial reporting purposes.

“Our concern is that the definition of unusual items will end up being in a very similar process of arguing amongst ourselves in the profession about what’s unusual and what’s not under that definition,” Schneider said. “If you’re going to go there, we think more work needs to be done on unusual items. But the slant of our letter is, is that really necessary, or should you just focus on management performance measures and don’t worry about creating the subset of unusual items?”

The operating category. The proposal to use cash flow categories (operating, investing, and financing) for the statement of profit and loss is confusing because the definitions are different from those used in the statement of cash flows, FinREC wrote.

“You can’t have two primary financial statements with the same titles that have different definitions,” Schneider said.

Integral and nonintegral associates and joint ventures. FinREC suggested that the final standard include factors to consider in determining if a venture is integral and require disclosure of how the entity viewed such factors as part of the disclosures on accounting policy.

The refined definition of “integral associates” in the proposal may cause confusion on what constitutes integral and nonintegral, according to FinREC.

“Rather than really tying down the definition, we thought it might be better if you gave us some factors to consider and make sure the businesses are telling the investors through disclosure how they viewed those factors and what they did,” Schneider said.

Statement of cash flows. Moving all interest expense to the financing section contradicts other accounting requirements, FinREC wrote.

The proposed movement of all interest and dividends received to the investing section of the cash flow statement, meanwhile, also worries FinREC because classifying all dividends received as investing cash flows may contradict the desire to split affiliates and joint ventures between integral and nonintegral.

“Our question is, if you’re pulling all interest expense and all cash payments out down to the financing section, you’re going to have a disconnect between what’s being capitalised on the balance sheet and how we’re showing it in the cash flow statement,” Schneider said. “That seems an inconsistent outcome to us, and not one that was intended.”

General presentation, aggregating/disaggregation. Disaggregating dissimilar immaterial items is not necessary because, by definition, disclosure of immaterial items is not necessary, FinREC wrote.

Ken Tysiac ( is FM magazine’s editorial director.