Re-shaping financial statement presentation

A re-shaping of the presentation of financial statements to improve their usefulness is proposed under a new IFRS^® Standard that would replace IAS^®1 Presentation of Financial Statements.

Proposals from the International Accounting Standards Board (the Board) in their exposure draft (ED) General Presentation and Disclosures could introduce significant changes for many companies in how they present and/or disclose financial information in the financial statements, particularly in the income statement. Presentation choices in the cash flow statement would also be reduced, improving comparability. 

With no set structure for the income statement under current IFRS Standards, companies use different formats to present their results, making it difficult for investors to compare financial performance across companies.

Under the proposals, companies would be required to present three new subtotals in their income statement, effectively allocating their income and expenses between four major categories, as illustrated below.

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Income and expenses from ‘integral’ associates and joint ventures would be presented separately in the income statement. Determining which of its equity-accounted associates and joint ventures are ‘integral’ could require a company to make potentially significant judgements.  

When classifying income and expenses into each of the categories, companies would also need to consider the nature of their business activities. For example, if a company provides financing to customers as its main business activity (e.g. a bank), it would classify in the operating category, income and expenses from financing activities, and interest and expenses from cash and cash equivalents related to providing financing to customers. 

As well as changes to the structure of the income statement, the proposals introduce new requirements for companies to provide an analysis of their operating expenses on the face of the income statement – either by nature or function – selecting the method that provides the ‘most useful’ information. The proposed approach would explicitly prohibit ‘mixed presentation’ of operating expenses on the face and would remove the option to present analysis in the notes only.

To further improve disaggregation, the proposals introduce disclosure requirements and guidance for ‘unusual’ items and other changes to discourage aggregation of items into large, single numbers.

The proposals also introduce more transparency and guidance on the disclosure of management’s own performance measures¹ (MPMs). 

Companies are increasingly using ‘non-GAAP information’ to explain their financial performance because it allows them to tell their own story and provides investors with useful insight into a company’s performance. 

Acknowledging investors’ demand for MPMs, the Board is proposing that MPMs used in public communications outside the financial statements are required to be disclosed in a single note to the financial statements. Companies would also be required to explain why the measures provide useful information and how they are calculated, and provide a reconciliation to the most directly comparable profit subtotal specified by IFRS Standards.

These proposals are broadly aligned with guidelines prescribed by regulators on alternative performance measures (APMs) disclosed outside the financial statements.

The International Accounting Standards Board has extended the comment period by three months to 30 September 2020 due to the COVID-19 pandemic. Read our web article.

Read our New on the Horizon (PDF 1.6 MB) publication, which explores some of the potential impacts and offers illustrative examples showing how financial statements might be presented.

For further information on the proposals, speak to your KPMG contact.