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July 26, 2011

Financial statements do not need drastic changes

Members of the European Financial Reporting Advisory Group (EFRAG) think there should be an “evolution” of financial statement presentation requirements rather then drastic changes to the current model.

In its report to the International Accounting Standards Board (IASB), EFRAG said its European constituents believe the major concerns about the current presentation model could be addressed through amendments or improvements to existing International Accounting Standards (IASs) rather than introducing a new presentation model, which would involve substantial implementation and maintenance costs.  

The two standards cited were: IAS 1 Presentation of Financial Statements and IAS 7 Statement of Cash Flows.

According to EFRAG’s members in several locations the costs to maintain the new presentation model would be comparable to the effort associated with the initial adoption of IFRSs in Europe.

Members also argued that current IAS 1 and IAS 7 are sufficiently flexible to allow an entity to present its financial position and financial performance, in the way the management manages that entity, and to ensure consistency between internal and external reporting, which they say is vital for effective communication between an entity and its stakeholders.

EFRAG members also called for the IASB to address the “fundamental issues related to performance reporting, namely, what constitutes performance and what is the impact of the business model on it; where and how should the line be drawn between profit and other comprehensive income (OCI), and whether reclassification of OCI items (recycling) is needed”.

Other highlights of the report include:

  • Members question whether the IASB should develop one generic presentation model for all industries or consider developing industry-specific models;
  • Generally members agree the proposals in the IASB draft would result in too much detail on the face of primary statements, obscuring key messages and would complicate rather than improve the communication between an entity and its stakeholders; and
  • The majority of members participating in the outreach meetings were against mandating the direct method for presenting operating cash flows.

 

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