Investors today demand more structure and transparency in the presentation of entities’ financial statements. They also want more direct comparability between financial statements and more alignment in how particular financial measures are treated.
The International Accounting Standards Board (the Board) is proposing a new standard on presentation of financial statements to improve their usefulness and relevance.
The proposals in the exposure draft General Presentation and Disclosures focus on the structure of the income statement. Entities would be required to present three new profit subtotals in their income statement, effectively allocating their income and expenses between four major categories, and present an analysis of their operating expenses on the face of the income statement.
Entities are increasingly using non-GAAP information to explain their financial performance. The Board’s proposals acknowledge the importance of these management performance measures and investors’ demand for them. The proposals could add more credibility to these measures: entities and their investors stand to gain as long as these are disclosed in an unbiased and transparent way and properly defined, explained and reconciled.
The proposals are likely to impact all entities across different industries and could present some challenges in implementation, but also an opportunity to communicate more effectively. The Board’s chairman has referred to this initiative as a game changer, and that is not an understatement.
As the Board continues to seek views on its proposals (until 30 September 2020), this New on the Horizon explores some of the potential impacts and offers illustrative examples showing how financial statements might be prepared and presented under this future standard.
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