IASB February 2007

The Board discussed the presentation of information about liquidity, particularly information about the short-term and long-term nature of assets and liabilities.

The Board asked the staff to explore whether the notion of solvency should be included in the working principle that states ‘the financial statements should present information in a manner that helps a user assess the liquidity of an entity’s assets and liabilities (nearness to cash or time to conversion to cash).’

The Board was in general agreement with the direction of the staff’s recommendation that an entity should provide the following information in the financial statements:

• qualitative information about its liquidity management policy and processes

• details of maturities of its long-term assets and liabilities with contractual maturities.

• details of maturities of its short-term assets and liabilities as described below:

(a) If an entity manages its needs for cash on the basis of a period shorter than one year, the detailed maturities of assets and liabilities with contractual maturities should be provided for more than one time band (similar to what is required by IFRS 7 Financial Instrument: Disclosures, for financial liabilities).

(b) If an entity does not manage its needs for cash on the basis of a period shorter than one year, the maturity information may be provided either on the face of the statement of financial position or in the notes. However, if the entity presents the information in the statement of financial position, each of its assets and liabilities should be classified as either short-term or long-term.

An entity that manages its needs for cash on the basis of a horizon shorter than one year should classify the maturities of all its assets and liabilities having contractual terms by either:

• the shorter of the contractual maturity and the expected realisation or settlement of the asset or liability; or

• both (i) the contractual maturity and (ii) the expected realisation or settlement of the asset or liability, provided that it is consistent with the entity’s liquidity management activities. Under this approach, any major differences between (i) and (ii) should be explained.

Otherwise, maturity information should be based on the shorter of (a) the contractual maturity and (b) the expected realisation or settlement of the asset or liability.

The Board asked the staff to revise those recommendations so that it is clear how the information is similar to or different from the requirements in IFRS 7.