Trial Free Trial APLN WEBT097A 68037 0 Financial Accounting Resource Center The Financial Accounting Resource...
By David R. Jones
May 11 — The International Accounting Standards Board's proposed changes to its standard on cash flows would create a “piecemeal and prescriptive requirement without first setting clear principle-based objectives,” the European Financial Reporting Advisory Group charged May 11.
EFRAG urged the board to first set clear objectives for cash flow statement disclosure requirements before settling on them.
In a comment letter submitted to IASB on the board's exposure draft—ED/2014/6—proposing amendments to International Accounting Standard 7: Statement of Cash Flows, EFRAG said it generally supports the ED's broad aim to require disclosures on movements in debt.
This approach would satisfy users' need for a net reconciliation of debt, the comment letter said.
However, EFRAG urged IASB to “first establish the objectives for the disclosures” and then set requirements based on these objectives, “while allowing entities to determine the most appropriate way to provide the required information.”
Under the ED's proposed changes to IAS 7, entities would have to disclose reconciliation of amounts in their opening and closing statements of financial position.
This requirement would extend to each item for which cash flows have been., or would be, classified as financing activities in the statement of cash flows, while excluding equity items.
The ED, published last December, also would extend IAS 7's disclosures provisions about an entity's liquidity and proposes requiring disclosures about restrictions that could affect an entity's decisions to use cash and cash equivalent balances.
The ED's proposals on cash flows respond to “requests from investors for improved disclosures about an entity's financing activities and its cash and cash equivalents balances,” IASB said in a Dec. 18, 2014 statement.
The comment period on the ED ended April 17.
The ED marks the first time that IASB has included proposed changes to the International Financial Reporting Standard Taxonomy in an exposure draft.
“The IASB plans to assess the form, content and timing of the proposed IFRS Taxonomy Update on the basis of feedback received on these proposals,” according to the ED.
Along with slamming IASB for introducing prescriptive guidance into IAS 7 without first establishing objectives for disclosures, EFRAG criticized the ED's proposed disclosure requirements regarding restrictions on cash and cash equivalent balances.
The IASB's proposals on cash and cash equivalent balances lack a clear goal and overlap with current guidance in other IFRS, the comment letter said.
EFRAG urged IASB to clarify its existing standards in lieu of introducing additional disclosure requirements.
On a larger scale, EFRAG called on the board to “reconsider the purposes and use of the statement of cash flows for financial institutions (such as banks and insurers) that seems to be of limited relevance for users.”
EFRAG said that its stakeholders put only slight weight on financial institutions' cash flow statements because these statements fail to take into account the complexity of liquidity and funding management.
The group noted that it currently is addressing this topic by conducting research on cash flow statements for financial Institutions.
EFRAG also opposed the inclusion of proposed taxonomy changes in the ED.
Modifications to taxonomy should remain a separate activity of the IFRS Foundation, IASB's parent group, and including it in an ED could undermine IASB's principles-based approach to standard setting, the comment letter said.
EFRAG issued the comment letter despite divisions in its ranks on the ED, particularly among members of its Technical Expert Group (TEG), according to a notice on the group's web site.
The EFRAG TEG noted in an April 23 conference call that “views of constituents were split as EFRAG's preliminary views had been,” referring to EFRAG's initial discussions on the ED in January 2015, the notice said.
In response, the TEG didn't attempt to characterize a majority view among its members on the ED.
Instead, the advisory panel worked to identify aspects that could serve as the basis for consensus.
To contact the reporter on this story: David R. Jones in London at firstname.lastname@example.org
To contact the editor responsible for this story: Steven Marcy at email@example.com
The EFRAG comment letter is available at http://www.efrag.org/files/EFRAG%20public%20letters/Amendments%20to%20IAS7%202014/EFRAG_Comment_Letter_on_ED_2014_6.pdf. The ED on IAS 7 can be downloaded at http://www.ifrs.org/Current-Projects/IASB-Projects/Debt-disclosures/Exposure-Draft-December-2014/Documents/ED-Disclosure-Initiative-Amdments-IAS-7-December-2014.pdf.
For a discussion on preparing cash flow statements, see 5121-3rd, The Cash Flow Statement, at 5121.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)