On or about 17 December 2019, the International Accounting Standards Board (IASB) has proposed improvements to the way information is communicated in the financial statements, with a focus on financial performance. Responding to investor demand, the proposals would require more comparable information in the statement of profit or loss and a more disciplined and transparent approach to the reporting of management-defined performance measures (‘non-GAAP’).
New subtotals in the statement of profit or loss
Companies would be required to provide three new profit subtotals, including ‘operating profit’. The new subtotals would give better structure to the information and enable investors to compare companies.
‘Non-GAAP’ transparency
Companies would be required to disclose management performance measures—subtotals of income and expenses that are not specified in IFRS Standards—in a single note to the financial statements. These requirements would add much-needed transparency and discipline to the use of non-GAAP measures and make it easier for investors to find the information they need to make their own analyses.
Improved disaggregation of information
The IASB has proposed new guidance to help companies disaggregate information in the most useful way for investors. Companies would also be required 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 requirements would help investors analyse companies’ earnings and forecast future cash flows.
The above proposals would result in a new IFRS Standard that sets out general presentation and disclosure requirements relevant for all companies, replacing IAS 1 Presentation of Financial Statements. The IASB is also proposing to amend some other IFRS Standards.
The Board developed these proposals as part of its Primary Financial Statements project and wider work on ‘Better Communication in Financial Reporting’. The proposals cover three main topics.
The full document will be available on the International Financial Reporting Standards (IFRS) official page.
An IFRS account is needed to comment on the exposure draft.
Source: IFRS website, 18 December 2019