IASB March 2007

The Board discussed three issues:

• the presentation of changes in assets and liabilities
• the presentation of other comprehensive income items
• whether to retain the concept of cash equivalents and, if so, its definition.

Presentation of changes in assets and liabilities

The Board tentatively decided that, in principle, the cohesiveness principle should be applied at the line item level, ie changes in individual line items on the statement of financial position should be linked to similarly classified line items on the statement of comprehensive income and statement of cash flows, to the extent possible. To achieve line item cohesiveness, the Board tentatively decided to consider a reconciliation of beginning and ending statements of financial position. The purpose of this reconciliation would be to provide information that would help investors and other users understand the cause of a change in amounts of assets and liabilities, which is consistent with one of the project’s working principles.
The Board tentatively decided that, in determining what information about changes in amounts of assets and liabilities should be disaggregated in the financial statements, it would consider the characteristics of persistence and measurement subjectivity because those are factors that a user of financial statements takes into account in predicting future cash flows. For example, changes related to recurring fair value measurements (as those terms are used in SFAS 157 Fair Value Measurements) might be presented separately from other changes in assets and liabilities. The Board will continue at a future meeting its discussion of what types of changes should be disaggregated. A majority of Board members expressed a preference for not requiring use of the direct method of reporting operating cash flows. The Board tentatively decided that if the indirect method is used, a reconciliation of operating income and cash flows from operating activities should continue to be provided.

Presentation of other comprehensive income

The Board resumed its discussion at its meeting in December 2006 of how other comprehensive income items should be presented in the statement of comprehensive income. The Board continues to have a mixed view on this issue. Thus, it tentatively decided that more than one alternative should be included in the discussion document including one that would present OCI items separately from other income and expense items. The staff were asked to develop possible alternative presentations for discussion at a future meeting.
Under most of the presentation alternatives being considered each other comprehensive income item would need to be classified in one of the functional categories (operating, investing, or financing). With the exception of the foreign currency translation adjustment, the Board tentatively decided not to prescribe specific classification guidance for other comprehensive income items. Thus, those items would be classified on the statement of comprehensive income consistently with the classification of the asset or liability that gives rise to them. The Board tentatively concluded that in the statement of comprehensive income, foreign currency translation adjustments related to consolidated subsidiaries and proportionately consolidated joint ventures should be classified in the operating category, and foreign currency translation adjustments related to equity method investments should be classified in the same category as the equity method investment. To achieve the Board’s long-term goal of presenting other comprehensive income items in the same manner as all other changes in assets and liabilities, the Board tentatively decided to address the standards that give rise to other comprehensive income items individually and separately, rather than as part of the financial statement presentation project.

Cash equivalents

The Board tentatively decided that the notion of cash equivalents should not be retained in financial statement presentation. The definition of cash in existing literature would be retained and the statement of cash flows would present information on changes in cash only. The Board directed the staff to consider whether net amounts of receipts and payments related to items previously classified as cash equivalents be permitted for presentation on the statement of cash flows. The Board will discuss how financial assets should be presented in the statement of financial position and what related disclosures in the notes to financial statements should be required when it revisits other liquidity disclosure issues.