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THE NEW FINANCIAL STATEMENT PRESENTATION: A Change for Change's Sake?

What is this all about?

An exposure draft is expected to be released in the fourth quarter of 2011 which represents a joint project of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) that will give guidance on the presentation of information in the financial statements. A joint discussion paper was issued in October 2008 to summarize the project's conclusions to date.

Why the change?

The IASB and FASB state that the existing presentation guidelines make it difficult to understand the relationship between the various financial statements. They also contend that the information in the different financial statements is inconsistently presented. These factors make it difficult for someone to properly assess the financial health of an organization.

The discussion paper identified two key goals of the project's changes:
• Cohesiveness - formatting the information in financial statements so that the reader can follow the flow of information throughout the various financial statements.
• Disaggregation - separating information so that it is useful in predicting an entity's future cash flows.

What are the new statement titles?

The new statement titles are as follows:

• An income statement will now be called Statement of Comprehensive Income
• A balance sheet will now be called a Statement of Financial Position
• Statement of retained earnings will nwo be replaced by a Statement of Equity

See the below for a chart comparing the new titles:

In addition to the above, the financial statement formats will change. All statements are to be subdivided into the same general categories: a business section (subdivided further into operating and investing activities) and a financing section.

Furthermore, the statement of cash flows can only be presented on the direct method, so reconciliation between net income and cash flow must be presented in the notes to the financial statements.

See the following chart for an overview of the new statements:

So, what is the purpose of this change?

The regulators hope that the new financial statement will bring clarity and transparency to financial statement users. As with most change, initial confusion over the new statements is very likely. Users will have to readjust to how they look at statements, and they will have to compute new rations. Companies may also incur additional costs of tracking and sorting information to be able to produce financial statements under the new acceptable format. Furthermore, it will take users, companies, auditors and preparers additional time to adjust to the new formats. Time and money runs thin for most businesses these days as the economy continues to lag. Is this a situation of making change for change's sake? One would hope that the IASB and FASB are basing their decisions on compelling need, but many of us are not convinced there is one.

For further information please contact:

Mr. Robert W. Van Arnum
WithumSmith Brown, PC
One Spring Street
New Brunswick NJ 08901
U S A
Phone: +1 609 520 1188
E-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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