IASB publishes amendments to IAS 7 Statement of cash flows as part of the wider Disclosure Initiative project.

The IASB today published narrow focus amendments to IAS 7 Statement of cash flows as part of the wider Disclosure Initiative project portfolio. 

The Disclosure Initiative project portfolio was introduced following the Discussion Forum on Disclosure in Financial Reporting from January 2013, and includes within its scope possible changes to the following standards:

            IAS 1 Presentation of financial statements

            IAS 7 Statement of cash flows

            IAS 8 Accounting policies, changes in accounting estimates and errors

The first published amendments from this portfolio of projects occurred in December 2014, introducing changes to IAS 1 addressing inter alia materiality and aggregation, accounting policy disclosures, and the content and sequencing of the financial statements and notes.  These amendments became effective for accounting periods commencing 1 ^st January 2016, and received endorsement from the EU just before the end of 2015.

The proposed amendments to IAS 8 are expected to be published as an Exposure Draft (ED) early in 2016.  These amendments are expected to suggest changes to the definitions of accounting policies and accounting estimates in order to add clarity to these two very much misunderstood ideas.

Today’s amendments were first aired in an ED published in December 2014. The finalised amendment today follows closely the proposals in the ED.  The amendment introduces a new disclosure for all entities that supports the Statement of Cash Flows by explaining the movement in the entity’s liabilities (between the opening and closing statements of financial position) that is not explained by the amount presented within “Financing Activities” as being due to the issue or repayment for cash of the entity’s liabilities.

Take a simple example.  Suppose that in the previous year’s statement of financial position, liabilities are presented as CU100m, and that the statement of cash flows identifies new liabilities issued of CU30m.  Ignoring the payment of interest, one would expect that the closing liabilities would be CU130m.  However, the closing statement of financial position identifies closing liabilities of CU170m.  Why so?  Careful reading of the disclosures made “elsewhere in the financial statements…” (see IAS 7 paragraph 43 Non-cash transactions ) reveals that the entity took on assets and liabilities under finance leases of CU40m. So this new disclosure simply captures in a note that reconciles opening and closing liabilities, those things that would be apparent from a diligent search through financial statements.  Note, however, that the introduction of finance leases is not the only reason for the liabilities and financing cash flows to require reconciliation – others include foreign exchange rate movements and fair value changes.

Have any of you seen anything similar in your own jurisdictions GAAP?  Those of you with a background in the “old UK GAAP” in place before 2015 will recognise a similarity to the net debt disclosure note in FRS 1 (now replaced). Note, though, that the new proposed IAS 7 disclosure is of gross rather than net debt.

The amendment is mandatory for accounting periods commencing on or after 1 ^st January 2017, and early adoption is allowed.  However, for those of you with EU reporting responsibilities, you will of course have to wait until the amendment receives its endorsement.  The first time application of the amendment is prospective, allowing but not requiring the presentation of the same reconciliation note for the comparatives.

Further details at IASB:  http://www.ifrs.org/Alerts/PressRelease/Pages/IASB-responds-to-investors-call-for-improved-disclosures.aspx