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Comments from ACCA
July 2006

ACCA is pleased to have this opportunity to comment on the above Exposure Draft (ED) which was considered by ACCA’s Financial Reporting Committee. 

Overall comments

We generally agree with the proposals made in the ED. We also consider the joint IASB/FASB project to improve and develop the presentation of financial statements and particularly of an entity’s financial performance to be very important. We are not so convinced, however, that the changes proposed in this ED, which form Part A of that project, should be implemented soon.

We wrote to you in May this year in response to the exposure draft ED8 including some general comments about convergence between US GAAP and IFRS. This raised questions about the pace of change in IFRS and the problems this creates in terms of adoption of, and compliance with, IFRS around the world. We consider there is a clear case for a continuing pause in the application of new standards, and to collect future changes (such as these) so that they can be implemented as a batch.

Responses to specific questions raised

Question1. Replace ‘balance sheet’ with ‘statement of financial position ’

We would prefer if balance sheet as a title were retained. This is a well known and understood term.

Question2. Requiring an opening balance sheet to be shown

The requirement in IAS1 should remain at providing closing balance sheets. Users do not seem to be asking for this extra information to be reproduced from the previous year’s accounts, and we consider that they are as likely to find the extra balance sheet confusing as helpful.

Question3. All non-owner changes in equity are to be recognised income and expense
Question4. All such changes to be separate from owner changes in equity

We agree with the principle here. All changes in equity that are not transactions with owners as owners, should be recorded as income or expense in one or more separate statements of income and expense.

We note however that this is a significant change given for example that revaluation surpluses in IAS16 are not referred to as income, but an item to be ‘recognised directly in equity’.

We support the requirement for a Statement of Changes in Equity (SOCE) to capture all owner changes and that this should be given equal prominence and not just shown in the notes to the accounts.

We also note that the boundary between equity and liabilities is changing. IASB has addressed some of these issues in their recent exposure draft of amendments to IAS32. The treatment of minority interests as a form of equity was, in our view, a controversial aspect of the recent exposure draft dealing with accounting for business combinations. The treatment here in IAS1 should not get ahead of the resolution of the full implications of the treatment of minority interests in the business combinations project.

Question 5. Recognised income and expense can be presented in a single or in two statements

We recognise that offering a choice of one or two statements is probably a practical answer for the present. In principle we would prefer there to be a single statement and this may be only possible if implemented as part of the complete IASB/FASB project.

We are concerned that the combination of users being presented with one or two separate statements of recognised income and expense (SORIE), together with the SOCE, and those statements being given a variety of titles
may produce financial statements that are hard to understand and potentially confusing.

Question 6. Reclassification adjustments should be disclosed

We agree with the proposed disclosures.

Question 7. The tax effect is be disclosed for each of the ‘other items’ separately

IAS1 should allow the tax effect of other recognised gains and losses to be shown as a single line in that part of the SORIE.

Question 8. Standard EPS are to be the only per share measure allowed on the face of the P&L/SORIE

We do not agree with these proposals.

Subject to the standard earnings per share (EPS) measures being reported prominently and there being clear labelling of any other EPS figures, entities should be free to report non-standard EPS numbers on the face of any SORIE or P&L account. Likewise we consider that entities should be able to report dividends per share in a similar way. The comparison of earnings of the business and the extent to which those have been paid out by way of dividends is one that many users make in looking at financial statements and should therefore be facilitated.

Other comments

In the example on page 92 amounts for ‘Changes in inventories of finished goods and work in progress’ cumulatively over 20X7 and 20X6 amount to 222 million currency units. The total value of inventories shown on page 87 is only just over 135 million. This seems a confusing and unrealistic example in this respect.

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