Presentation of Financial Statements: Is the Future Less Flexible?

IAS standard 1, “Presentation of Financial Statements” currently leaves managers with plenty of flexibility to adapt how they present income statements to match their ideas about performance.

Outside of the few lines that are the obligatory minimum, this standard does not define any aggregate performance indicator. As a consequence, today’s presentation practices and the indicators they use vary widely: operating margin, non-recurring items, EBITDA, operating income, etc. These indicators are presented either in financial statements or in other financial information documents.

Given the growing demand from external users and regulators, who are often frustrated by these “Non-GAAP” indicators, the IASB seems determined to bring the situation back under control and protect the legitimacy and attractiveness of its financial statements.

As part of its “Better Communication” priority initiative, the IASB will publish a concept paper, which will include the following main proposals:

Require the presentation of a “standardized” EBIT indicator that de facto standardizes financing elements
Include a new investing category called “income/expenses from investments” above EBIT to present income from investments
Propose a rule to present income from associates and joint ventures by studying the possibility of distinguishing between two types, one being operational
Require that performance indicators monitored by management and which are communicated elsewhere be presented in the financial statements and disclosed in the income statement if these indicators are compatible with the new mandatory format, otherwise in the notes with a mandatory reconciliation over several years
Remove some presentation options from long-term debt disclosures (interest flows, single starting point for the indirect method, etc.)

We hope to offer you a more detailed summary of the IASB’s various proposals as soon as the concept paper is released.

Until then, please do not hesitate to contact our IFRS experts with any questions you may have about the presentation of your financial statements.