Proposals to improve the reporting on financial performance

The International Accounting Standards Board (IASB) has developed proposals for improving the reporting on financial performance. These proposals are included in an Exposure Draft on General Presentation and Disclosures and are part of the IASB’s Primary Financial Statements project and wider work on ‘Better Communication in Financial Reporting’. The proposals cover three main topics:

New subtotals in the statement of profit or loss

Entities would be required to provide three new profit subtotals, including “operating profit”. “Operating profit” is commonly reported by entities but is not defined in IFRS Standards. This makes comparison by investors difficult.

Transparency in reporting of “non-GAAP” measures

Entities often disclose performance measures that are not specified in the IFRS Standards – known as “non-GAAP” measures. Entities would be required to disclose these “non-GAAP” measures in a single note to the financial statements explaining why the measures provide useful information, how they are calculated and to provide a reconciliation to the most comparable profit subtotal specified by IFRS Standards.

Improved disaggregation of information

Deciding what or how information should be aggregated or disaggregated is a difficult area for preparers as it requires judgement, along with an understanding of what information investors require. The IASB is proposing guidance to assist preparers with this decision. Entities would also be required to provide an analysis of their operating expenses, including an analysis of items of income or expenses that are “unusual”.

Impact of changes

The proposals would result in a new IFRS Standard to replace IAS 1 on Presentation of Financial Statements along with changes to existing IFRS Standards.

Comment on the proposals

The Exposure Draft can be accessed here. The comment deadline is 30 September 2020.

The views expressed in this article are those of Secretariat and not the ASB Board.