The most controverisal aspect of the IASB’s shake-up of financial statement presentation is the move to a so-called single statement of comprehensive income.
The way David Tweedie, and his US opposite numbers at the FASB, plans to head off the expected opposition to the proposal is bizarre. The solution, it seems, is to assume that preparers can be had for fools.
The official recording of the IASB’s 19 January board discussion reveals that the IASB and the FASB will avoid using the word ‘single’ in their financial statement presentation exposure draft.
During the meeting, Tweedie said: “We wondered whether to avoid a lot of the ‘aggro’ that will arise, and yet still present exactly what we want, it might be more subtle if we talked about showing continuous statements of comprehensive income.”
The plot, it seems, has transatlantic conspirators. Russell Golden, the technical director at the Connecticut-based FASB summed up the approach as follows: “Rather than saying a single statement, you say both a statement of income and a statement of comprehensive income need to be shown continuously, so you still say there are two statements, they are just displayed continuously.”
In general terms the single statement of comprehensive income, which David Tweedie wants to see IFRS filers move to, comprises two sections: profit or loss and other comprehensive income.
As we noted in IPE last month, how the IASB plans to achieve its single-statement format for comprehensive income is largely a question of removing the option that currently exist in IAS1 at paragraph 81. This choice allows an entity to present all items of income and expense in two statements.
Somewhat surprisingly, former equity analyst Stephen Cooper bought into the proposed approach. Contributing to the discussion, he said: “I think we should not talk about ‘single’ [anything] … but I think we should emphasise that it is two sections. There are two components to the statement of comprehensive income.”
As is so often the case, the voice of sanity sounded, courtesy of Jim Leisenring: “To say there are two statements is just a misstatement, that’s not true. There is only one comprehensive income and that’s a total at the bottom. … It is a single statement of comprehensive income and we can’t deny that,” he argued.
One contact recently summed up the boards’ approach to financial statement presentation in just two words - confirmation bias. Pharmaceutical concern Roche indirectly touched on the issue in a 2008 letter to the IASB’s parent organisation regarding corporate governance.
Roche cited the example of where “the Board receives overwhelmingly negative comments to a proposal but nevertheless presses ahead with it with the argument that the feedback did not bring to light any new arguments not previously considered or that the commentators obviously had not understood the proposal.”
Clearly David Tweedie has learnt little from Roche’s observations, preferring instead to hide its behaviour rather than modify it. But comments made during a November 2009 Standards Advisory Council meeting by Stig Enevoldsen, the chairman of the European Financial Reporting Advisory Group, suggest that Tweedie might be about to have an uncomfortable encounter with political reality.
Enevoldsen warned: “On OCI, we have learned recently that the board intends to remove an option, and I think that is an elegant way to name it. But I think I wouldn’t waste my time issuing that exposure draft because my expectation would be that we would get accounting to be [at] almost the same political level as we have had on IFRS9 if we remove the net profit and the option to put it into two statements. … So, [this is] just a piece of advice to the board, that’s all.”
Comments made during the board’s December FSP discussion by Patrick Finnegan serve to underline the value of applying political pressure. Commenting on by-nature disaggregation of pension costs, he said: “I think the solution to this problem is relatively simple but I think unfortunately it results in a relatively rigid approach, which I know both Stephen [Cooper] and Pat [McConnel] and I have discussed and are not in favour of.” Those discussions do not appear to have taken place in public.