IASB, FASB Propose New Standards for Financial Statements

The International Accounting Standards Board (IASB), working jointly with the U.S. Financial Accounting Standards Board (FASB), recently published for public comment a discussion paper on financial statement presentation, marking the first step in the establishment of a somewhat elusive global standard governing the way business entities organize their financial statements. The discussion paper includes an IASB analysis of issues related to financial statement presentation and the boards' initial thinking on how to address them.

Neither International Financial Reporting Standards (IFRS), the system of accounting rules maintained by the IASB, nor U.S. generally accepted accounting practices (GAAP) include explicit directions on how financial statements are to be presented. The IASB and FASB have sought to establish a clearer presentation standard in order to quell user dissatisfaction with the variance and inconsistency that characterizes many financial statements.

"The credit crisis has highlighted the need for clear presentation of financial information that is often complex," said IASB Chairman Sir David Tweedie. "Early staff drafts of the paper that included an option to eliminate the 'net income' line were widely reported. However, the boards have chosen to proceed with proposals that build on established practice." Specifically, the IASB and FASB have sought to introduce two elements, cohesiveness and disaggregation, into all financial statements globally by using a principles-based format. Cohesiveness would ensure that users can follow information through the different statements of a business entity and disaggregation would ensure that items that respond differently to economic events are shown separately. 

Both boards are seeking public comment on the discussion paper from interested parties on both the objectives of the standard as well as the actual proposed format. "By working together to create one common, high-quality global standard for financial statement presentation, the boards are aiming to increase the usefulness of financial reports while enhancing their comparability across international capital markets," said FASB Chairman Robert Herz. "Extensive feedback from preparers, auditors, investors and other users of financial statements is welcome and vitally important."

Comments can be submitted at the IASB's website in the "Open to Comment" section. The comment period closes on April 14, 2009.

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