IASB June 2007
The Board continued its discussions on how the financial statements could present information about what causes a change in reported amounts of assets and liabilities, including the basis for disaggregating amounts recognised as income or expense and alternative formats for presenting that disaggregated information.
The Board tentatively decided that the disaggregation of changes in assets and liabilities should not be based on an entity’s view of whether the change has predictive value. Rather, the disaggregation should be based primarily on whether the change is a valuation adjustment (ie a change due to subsequent measurement of an asset or liability to a current value, which would include fair value). The Board noted that valuation adjustments give users of financial statements different information from that given by other items.
The Board also tentatively decided that the disaggregated information about changes in assets and liabilities should be presented in the notes in the format of a reconciliation of the statement of cash flows to the statement of comprehensive income. Thus, amounts would be disaggregated into at least three components: cash, valuation adjustments (including fair value changes), and all other changes.
The Board noted that for some businesses, valuation adjustments can behave more like other changes in assets and liabilities, and concluded that in preparing the reconciliation an entity should be allowed, as a matter of accounting policy, to classify those items in the same way as the other items. For example, management may consider it more useful to present inventory impairments in the same category as other costs of goods sold and not separately as a valuation adjustment.
The Board tentatively decided that the discussion paper should include all three formats it had discussed for disaggregating changes in assets and liabilities (ie a reconciliation of the statement of financial position, a statement of comprehensive income matrix, and a reconciliation of the statement of cash flows to the statement of comprehensive income) and indicate that the latter was its preferred format. The Board emphasised that this would be a note disclosure, not part of the other financial statements.
The Board discussed but did not reach any decisions on the classification of basket transactions (ie a single transaction that involves multiple assets or a combination of assets and liabilities that would be classified in more than one category under the proposed presentation format). The Board will discuss that issue again at a future meeting.