Discussion paper on financial statement presentation

The International Accounting Standards Board and the US Financial Accounting Standards Board have published for public comment a discussion paper on financial statement presentation. The paper contains an analysis of the current issues in financial statement presentation and presents the boards’ initial thinking on how those issues could be addressed in a possible future format.

International financial reporting standards and US generally accepted accounting principles provide only limited presentation guidance. In addition, presentation guidelines in US GAAP are dispersed across standards. Users of financial statements have often expressed dissatisfaction that information is not linked across the different statements and that dissimilar items are in some cases aggregated in one number.

To address these issues the IASB and the FASB propose to introduce cohesiveness and disaggregation as the two main objectives for financial statement presentation. Cohesiveness would ensure that a reader of financial statements can follow the flow of information through the different statements of an entity; disaggregation would ensure that items that respond differently to economic events are shown separately. To achieve these main objectives the boards have developed a principle-based format that is presented in the discussion paper.

The boards seek views from interested parties on both the objectives for the presentation of financial statements and the proposed format.

Introducing the discussion paper, Sir David Tweedie, chairman of the IASB, noted that “the credit crisis has highlighted the need for clear presentation of financial information that is often complex. Early staff drafts of the paper that included an option to eliminate the ‘net income’ line were widely reported. However, the boards have chosen to proceed with proposals that build on established practice. If you have an interest in the future presentation of financial information, now is the time to get involved.”

Robert Herz, chairman of the US FASB, commenting on the publication of the discussion paper, said: “Providing investors with the most transparent, consistent financial reporting possible is more critical than ever to the efficiency and soundness of our capital markets. By working together to create one common, high quality global standard for financial statement presentation, the boards are aiming to increase the usefulness of financial reports while enhancing their comparability across international capital markets. Extensive feedback from preparers, auditors, investors, and other users of financial statements is welcome and vitally important.”

The discussion paper is open for comment until 14 April 2009.

Preliminary Views on Financial Statement Presentation is available on the ‘Open for Comment’ section on www.iasb.org. Subscribers may also view the document in the eIFRSs Website.