24/02/2020 - EFRAG draft comment letter on Primary Financial Statements

​In its Draft Comment Letter, EFRAG welcomes the Exposure Draft and the IASB's efforts to improve the structure and content of the primary financial statements.

EFRAG supports the IASB's proposals to present an operating, investing and financing category in the statement of profit or loss to improve comparability and reduce diversity in practice. However, EFRAG has reservations over some of the proposals in the ED:

• the newly created categories in the statement of profit or loss are not aligned with the presentation of cash flows in the statement of cash flows, however, they have  similar labelling;

• clear guidance is needed on the notion of 'entity's main business activity' to distinguish between categories in the statement of profit or loss; and

• the ED proposals should consider the interaction with existing regulatory frameworks on presentation of financial statements;

EFRAG is also seeking views from constituents on the IASB's approach to consider as part of the financing category the income and expenses that arise from:

• cash and cash equivalents;

• time value of money on liabilities that do not arise from financing activities. 

EFRAG considers that separate presentation of integral and non-integral associates and joint ventures will result in relevant information for users of financial statements and enhance comparability. EFRAG highlights that such presentation will involve significant judgement and needs to be tested in practice.

EFRAG welcomes the IASB's efforts to provide guidance on management performance measures (MPMs) which are often used in practice and additional guidance on non-IFRS measures could bring more transparency and consistency on their use. However, EFRAG highlights a number of challenges in regard to the ED proposals and is seeking views of its constituents on a possible alternative narrower scope. EFRAG also suggests that the IASB further articulates the link between MPMs and IFRS 8 Operating Segments.

EFRAG welcomes the IASB's efforts to define unusual income and expenses and to require entities to disclose such items in the notes, however the definition of unusual items seems to be rather narrow, as it focuses on whether expenses/income will occur in the future. During its consultation period, EFRAG will reach out to national standard setters, users of financial statements, preparers, regulators, business associations and other accounting experts to test the practical application of the ED proposals.

EFRAG's draft comment letter can be found here.