Shaking Up Financial Statement Presentation

An early look at the FASB and IASB financial statement project.

November 2008
by Guy McClain and Andrew McLelland/Journal of Accountancy

In April 2004, FASB and the International Accounting Standards Board (IASB) created a joint project on financial statement presentation. The project is part of the memorandum of understanding between the two bodies that set out a road map for convergence between IFRS and U.S. GAAP. The goal is to create a common standard for the form, content, classification, aggregation and display of line items on the face of financial statements. The new guidelines are intended to help equity investors and other financial statement users better understand a business's past and present financial position and assess potential future cash flow.

The project applies to public and private business entities, but not to nonbusiness entities such as not-for-profits or defined benefit plans. It addresses the organization and presentation of information and the need for totals and subtotals in the financial statements, including the net income or loss subtotal.

Phase A

The work is being conducted in three phases. The boards completed deliberations on Phase A in December 2005, and on September 2007, the IASB published a revised version of IAS 1, Presentation of Financial Statements. This brought IAS 1 largely in line with FASB Statement no. 130, Reporting Comprehensive Income. FASB decided not to issue an exposure draft on its Phase A conclusions, but rather to issue a combined exposure draft for Phases A and B. FASB, however, did issue a set of tentative conclusions. Most significantly, a complete set of financial statements for a reporting period should include a statement of financial position, a statement of comprehensive income, a statement of changes in equity and a statement of cash flows. In addition, each financial statement should be shown with equal prominence, and a minimum of two years comparative information is required.

This article has been excerpted from the Journal of Accountancy.
View the full article here.