Why You Should Care About This IFRS Proposal

Unless you work for a subsidiary of a foreign company reporting under International Financial Reporting Standards (IFRS), most U.S. based CPAs generally feel there is little reason to pay attention to IFRS activities. Therefore, many of you probably missed the release of a proposed change to the standard on general presentation and disclosures in a financial report in the middle of December. However, this standard is one you might want to pay attention to, because it may push the Financial Accounting Standards Board (FASB) to tackle some similar issues in the U.S. Some key highlights from the standard include:

  • Required subtotals in the Income Statement, including Operating Profit which, unless the entity is a bank or similar financial services company, will generally exclude interest expense and interest income. Even interest income on customer receivables will be excluded unless you conclude a principle function of your business is to provide customer financing.
  • The disclosure of unusual items in the footnotes to the financial statements. Unusual is defined as unusual in occurrence or unusual in amount. And the proposed disclosures allow companies to show the impact of these items on the Income Statement, so you essentially get to include the “normalization” for such items in the audited financial statements.
  • The disclosure of “management performance measures” in footnotes defined as amounts:
    • Used in public communications outside financial statements,
    • Complementing totals or subtotals specified by IFRS standards, and
    • Communicating management’s view of an aspect of an entity’s financial performance to users of financial statements.

The disclosure will include information on how the management performance measure is calculated, how it reconciles back to the most similar IFRS total or subtotal, and how management believes it (better) portrays a financial aspect of the business.

  • The movement of all interest expense into the financing section of the cash flow statement, and interest and dividends received into the investing section. This means such amounts will no longer be included in the operating section of cash flows for most (non-financial services) companies.

The standard provides a lot of opportunity for companies to better tell their stories in the financial statements, but with that comes a price. The disclosures become part of the financial statements subject to auditing procedures if an audit is obtained on the financial statements. Whether or not you want to send comments on the IFRS is your choice, but this proposed standard may be one worth taking a look at to see potential changes that FASB might consider in the future.

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