Thursday, September 20, 2007

Update on FASB Financial Statement Presentation Project

The Financial Accounting Standards Board ("FASB") has an ongoing joint project with the International Accounting Standards Board ("IASB") relating to financial statement presentation. According to the FASB:

(The) joint FASB/IASB project was undertaken to establish a common, high-quality standard for presentation of information in the financial statements, including the classification and display of line items and the aggregation of line items into subtotals and totals. The objective of this standard is to present information in the individual financial statements (and among the financial statements) in ways that improve the ability of investors, creditors, and other financial statement users to:
  • Understand an entity’s present and past financial position
  • Understand the past operating, financing, and other activities that caused an entity’s financial position to change and the components of those changes
  • Use that financial statement information (along with information from other sources) to assess the amounts, timing, and uncertainty of an entity’s future cash flows.

What does this mean? Essentially, this is a part of the project to bring US accounting standards and international accounting standards together. This really is an important project, as in theory it make it easier for investors to understand financial information.

But what caught my eye was an announcement that the IASB revised their standards on financial statement presentation to be in conformity with FASB Statement 130, Reporting Comprehensive Income. Statement 130 introduced the concept of other comprehensive income. Items reported as comprehensive income under 130 includes changes in fair value of certain investments, changes in value in certain derivatives such as interest rate swaps, and other specific items. The standard writers didn't think these items should be reported as part of net income, but thought there should be a way to report this.

So they came up with other comprehensive income. I was hoping that concept would go away, not spread internationally.

The concept behind it all makes sense. But I had a client do an interest rate swap last year which resulted in having to make all sorts of changes to the statements and I had to explain to them why we needed to have a new financial statement reporting other comprehensive income.

Here is to hoping the next aspect of this project makes things easier for people to understand.

1 comment:

Preparing Financial Statements said...

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really useful to me...
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