Comments from ACCA to the International Accounting Standards Board, September 2010.
ACCA is supportive of the efforts of the IASB to improve presentation of financial statements. In previous submissions to the Board we have indicated broad support for a single statement of comprehensive income which we believe should result in greater consistency and comparability. The proposals in the ED would certainly help to provide more decision-useful information by clearly distinguishing between items reported in profit and loss (P&L) and those through other comprehensive income (OCI) in this one single statement.
However, we strongly believe that while this is an important project and there are some helpful proposals in this ED, the Board needs to urgently address the more fundamental issue of clearly identifying the distinguishing characteristics of items that fall into either P&L or OCI. Furthermore, the ED appropriately proposes separate presentation of items within OCI that are subject to reclassification to P&L (recycling) and those that are not. Similarly, we believe that the principles on which these classifications should be made have not been clearly established. These issues, echoing some of the alternative views noted in the ED, have significant repercussions on other active projects such as that on pensions accounting and financial instruments. We have therefore also raised these concerns in our recent comment letters to the Board's exposure drafts on Defined Benefit Plans (proposed amendments to IAS19) and Fair Value Option for Financial Liabilities.
While we therefore feel it is premature to be addressing presentational matters when some of these principles are in need of more urgent clarification, we have responded to the specific questions in the ED, as set out below.
Question 1
The Board proposes to change the title of the statement of comprehensive income to "Statement of profit or loss and other comprehensive income" when referred to in IFRSs and its other publications. Do you agree? Why or why not? What alternative do you propose?
We support the proposal to change the title of the statement showing all non-owners changes in equity to the 'Statement of profit or loss and other comprehensive income'. The profit for the year is a key line which represents an important starting point for analysis and comparison, and this is clearer in the proposed title.
We note that paragraph 10 allows the use of other titles for the performance statement. We see no merit in retaining the option to use other titles for the performance statement.
Question 2
The proposals would require entities to present a statement of profit or loss and other comprehensive income with two sections - profit or loss and items of other comprehensive income. The Board believes this will provide more consistency in presentation and make financial statements more comparable?
Do you agree? Why or why not? What alternative do you propose?
As stated in our response to the IASB/FASB joint discussion paper, Preliminary views on financial statement presentation, dated April 2009, we supported the use of single statement of 'comprehensive income', which would include all components of performance. By requiring a single statement only, this should ensure a level of consistency and comparability, while the retention of a separate section for other comprehensive income will preserve the difference in nature of items reported within it and those in profit and loss.
Question 3
The exposure draft proposes to require entities to present items of other comprehensive income (OCI) that will be reclassified to profit or loss (recycled) in subsequent periods upon derecognition separately from items of OCI that will not be reclassified to profit or loss.
Do you support this approach? Why or why not? What alternative do you propose, and why?
We support the proposed approach as it will give greater clarity to the financial statement and therefore provide more decision-useful information.
While the distinction between recyclable and non-recyclable elements of other comprehensive income is wholly appropriate, we still have significant concerns about the lack of clarity over the basis of what items should be shown in other comprehensive income as compared to profit and loss for the period in general as well as over the rationale for which items of OCI should be reclassified to P&L. In this respect, we believe it would have been wholly appropriate for the Board to have considered this as part of the project on financial statement presentation and in conjunction with the current proposals.
Question 4
The exposure draft also proposes to require that income tax on items presented in OCI should be allocated between the items that might be subsequently reclassified to profit or loss and those that will not be reclassified subsequently to profit or loss, if the items in OCI are presented before tax.
Do you support this proposal? Why or why not? What alternative do you propose and why?
This proposal is similar to the existing disclosure requirement for the related income tax of items in other comprehensive income, and as there will now be a segregation of items which are recyclable and non-recyclable it is appropriate to allocate the tax accordingly.
Question 5
In the Board's assessment:
a. The main benefits of the proposals are:
i. Presenting all non-owner change to equity in the same statement.
ii. Improving comparability by eliminating options currently in IAS 1.
iii. Maintaining a clear distinction between profit or loss and items of other comprehensive income.
iv. Improving clarity of items presented in OCI by requiring them to be classified into items that might be reclassified subsequently to profit or loss and items that will not be reclassified subsequently to profit or loss.
b. The costs of the proposals should be minimal because in applying the existing version of IAS 1, entities must have all the information required to apply the proposed amendments.
Do you agree with the Board's assessment? Why or why not?
We are generally supportive of the proposals along the lines of the basis of conclusions, with the disaggregation of items in other comprehensive income between recyclable and non-recyclable particularly helpful. However, and as we note in our response to Question 3, we are not convinced that the proposals truly help to 'maintain a clear distinction between profit or loss and items of other comprehensive income' in the sense that no principles governing what is shown in the latter have been set out.
We agree that the additional costs related to the proposals would be minimal, as much of the required information would be readily available for preparers.