Meeting Summary of HKICPA Roundtable Discussion for Investors, Analysts,Practitioners and Preparers of Financial Statements(via teleconference)
Date:
23 June 2020, TuesdayTime:
5:00 p.m. – 8:00 p.m.IASB Exposure Draft on General Presentation and Disclosures
1.Operating CategoryPreparers commented that in some cases it would involve judgement, and there isinsufficient guidance, to determine an entity’s main business activities. Theysuggested the IASB should provide more guidance and examples to helppreparers to determine their main business activities, including how an entity’smain business activities link to its segment reporting.
2.Investing CategoryStakeholders did not have specific comments about the investing category.
3.Financing CategoryA preparer confirmed that the proposed presentation of the unwinding of thediscount on liabilities in the financing category is consistent with that preparer’scurrent practice.Preparers generally agreed with the IASB’s approach to include all interest incomeon cash and cash equivalents in the financing category for cost-benefit reasons.
4.Categories in statement of profit or lossA preparer commented that the three proposed categories in the statement ofprofit or loss are similar, but not identical, to the three activities in the statementof cash flows and the differences between the categories in these two statementswill cause confusion. She considered that the IASB should clearly identify thelinkage and differences between each of the categories in these two statementsin the body of the Standard, not just in the Basis for Conclusions (eg, paragraphBC 51 of the ED describes the difference between the investing categories inthese two statements), noting that some users of the financial statements andother stakeholders may not read the Basis for Conclusions.
5.Integral and non-integral associates and joint venturesOne investor considered that it would be difficult for preparers to split a portfolio ofassociates and joint ventures between integral and non-integral, particularly for aconglomerate company that has different businesses, which would increase thecomplexity of performing the split. This investor noted that the proposals wouldlikely lead to diversity in practice and hence a lack of comparability.Another investor questioned the usefulness of having a split between integral andnon-integral associates and joint ventures on the face of the statement of profit orloss. He suggested the IASB should instead develop better disclosures about thecharacteristics and risk profile in the notes. He also commented that the proposedsubtotal of operating profit and income and expenses from integral associates andjoint ventures is misleading to users of the financial statements because thecompany does not have control over those investees and so the share of profit orloss of associates and joint ventures should not be mixed with the operating profitor loss of the company.A preparer considered that the existing disclosure requirements for associates andjoint ventures in IFRS 12 Disclosure of Interests in Other Entities in the notestogether with the proposal for the split of associates and joint ventures into integraland non-integral in the statement of profit or loss would be appropriate andsufficient for users of financial statements to understand how the company investsin the associates and joint ventures to develop their business.A preparer questioned whether the proposed subtotal of operating profit andincome and expenses from integral associates and joint ventures is intended tocapture all income and expenses related to associates and joint ventures. Shesuggested the IASB should provide additional guidance in this area to achieveconsistency in practice. For example, she recommended that the IASB shouldclarify whether finance costs incurred on a loan to integral associates and jointventures (that forms part of the carrying amount of the net investment in theseassociates and joint ventures) shall be grouped and presented above this subtotalin the statement of profit or loss.A practitioner commented that ‘significant interdependency’ in proposed paragraph20D of the ED would be a key factor in the determination of integral associatesand joint ventures and it is judgemental. The practitioner said the proposedclassification would be difficult to audit. Also, she mentioned that if a companyinvests in a portfolio of associates and joint ventures, the company may beuncertain whether there will be a significant interdependency between thecompany and the associates and joint ventures in the future, and hence they willbe classified as non-integral associates and joint ventures. She questioned howuseful the information about the split of integral and non-integral would be in thisscenario.
6.Aggregation and disaggregationAn investor expressed support for the aggregation and disaggregation proposals.There were no other specific comments.
7.Analysis of operating expensesOne investor questioned why the option to present the analysis of expenses in thenotes is proposed to be removed in the ED. He considered that the detailedanalysis of operating expenses should be in the notes so that the statement ofprofit or loss is concise and uncluttered, and noting that investors usually analysethe primary statements together with the corresponding notes. He suggested theIASB should provide additional examples to illustrate the minimum line items to bepresented in the statement of profit or loss.Another investor had a similar view that the statement of profit or loss should notbe overly detailed.
8.Unusual income and expensesOne investor said he welcomed the proposals, particularly basing thedetermination of unusual income and expenses on forward-looking information,which is consistent with investors using forward-looking information for their cashflow forecasts. He also shared his observations that an increasing number ofentities are disclosing non-recurring or similarly described items in their financialstatements and users would find it helpful to have a reconciliation of those itemsto IFRS specified totals or subtotals to understand how those items aredetermined.A preparer noted that the proposed definition would be subject to interpretationand suggested that the IASB should provide more guidance or real-life examplesto illustrate how to determine unusual income and expenses.
9.Management Performance Measures (MPM)
A preparer commented that the proposed disclosure requirements are excessiveand would increase significantly the work and costs for preparers. However theymay be confusing for less sophisticated users and users who are not familiar withIFRS.Another preparer raised similar concerns and shared her experience that entitiesmay provide additional disclosures to sophisticated analysts and investors onMPM to address their needs. However, providing such extensive disclosures toless sophisticated users of the financial statements would be overwhelming andmay not be understandable by them.A preparer commented that the scope of the MPM proposals is not comprehensiveas it only forms a sub-set of the Alternative Performance Measures as defined inESMA Guidelines on Alternative Performance Measures. The preparer alsoconsidered that there is insufficient time for users of financial statements tounderstand how the MPM proposals would provide them with useful informationand comment on the proposals. She suggested the IASB should carry out aseparate project to broaden the scope of MPM, and also provide more educationabout the current use of MPM to users and allow sufficient time for their feedback.Preparers also raised concerns about the practical difficulty and complexity inproviding sufficient information about how the MPM is calculated for auditors’verification.One investor shared his experience that it is currently difficult to understand theMPMs disclosed by entities. He is also skeptical of the usefulness of MPMs as theycould be easily manipulated by management. On the other hand, cash flows areharder to manipulate.Another investor agreed that the proposals on MPM may provide some usefulinformation, however, the extent of detail should be balanced with the incrementalcosts incurred by preparers. He thought that the most critical disclosure would bethe reconciliation from the MPM to the nearest IFRS specified total or subtotal,which could provide users with a better understanding of the underlyingperformance of the business.
10.EBITDAMost participants agreed with the IASB’s proposal not to define EBITDA.One investor considered the use of operating profit or loss before depreciation andamortisation as the IFRS specified subtotal is better than EBITDA as it is clearlydefined. However, he suggested the IASB should instead identify operating profitor loss before depreciation, amortisation, and impairment as the IFRS specifiedsubtotal to provide users with better insight on the free cash flows of an entity.
11.Statement of cash flowsOne investor commented that it is helpful to see the split of dividends paid fromintegral and non-integral associates and joint ventures, however, the costs versusbenefits of this proposal should be considered carefully.Another investor added that dividends paid from both integral and non-integralassociates and joint ventures are classified in the investing category in thestatement of cash flows. Therefore, he questioned why income and expenses fromintegral associates and joint ventures is presented in a separate category in thestatement of profit or loss, rather than in the investing category like income andexpenses from non-integral associates and joint ventures.
12.Further commentsClassification of fair value gains and losses on derivatives and of exchangedifferencesA preparer raised concerns that the principles for the classification of fair valuegains and losses on derivatives and of exchange differences, as summarised inparagraphs B39 and B40 of the ED, are complicated and difficult to understand.She also questioned why the presentation of derivatives would not bedifferentiated based on whether hedge accounting has been applied, meaningsuch presentation may not be useful to investors. She considered the existingdisclosure requirements under IFRS 7 Financial Instruments: Disclosures onfinancial risk management are sufficient for investors to understand the hedgingrelationships designated by an entity and how management manages the financialrisks of the entity. She also commented that the incremental costs incurred bypreparers to perform the proposed separate classification appeared to outweighthe benefits to users, unless there is a strong need for such information by users.Investors generally agreed with the preparer’s view and considered that theproposals for classification of fair value gains and losses on derivatives and ofexchange differences would provide limited benefits to them. One investorcommented that a balance should be made between the information needs ofinvestors, the work done by the preparers, and the competitive disadvantages ofdisclosing too much information to the public, particularly for public interest entities.
IASB Exposure Draft ED/2019/7 General Presentation and Disclosures — HKICPA Roundtable Discussion for Investors, Analysts, Practitioners and Preparers of Financial Statements
下载原件Meeting Summary of HKICPA Roundtable Discussion for Investors, Analysts,Practitioners and Preparers of Financial Statements(via teleconference)
Date:
23 June 2020, TuesdayTime:
5:00 p.m. – 8:00 p.m.IASB Exposure Draft on General Presentation and Disclosures
1.Operating CategoryPreparers commented that in some cases it would involve judgement, and there isinsufficient guidance, to determine an entity’s main business activities. Theysuggested the IASB should provide more guidance and examples to helppreparers to determine their main business activities, including how an entity’smain business activities link to its segment reporting.
2.Investing CategoryStakeholders did not have specific comments about the investing category.
3.Financing CategoryA preparer confirmed that the proposed presentation of the unwinding of thediscount on liabilities in the financing category is consistent with that preparer’scurrent practice.Preparers generally agreed with the IASB’s approach to include all interest incomeon cash and cash equivalents in the financing category for cost-benefit reasons.
4.Categories in statement of profit or lossA preparer commented that the three proposed categories in the statement ofprofit or loss are similar, but not identical, to the three activities in the statementof cash flows and the differences between the categories in these two statementswill cause confusion. She considered that the IASB should clearly identify thelinkage and differences between each of the categories in these two statementsin the body of the Standard, not just in the Basis for Conclusions (eg, paragraphBC 51 of the ED describes the difference between the investing categories inthese two statements), noting that some users of the financial statements andother stakeholders may not read the Basis for Conclusions.
5.Integral and non-integral associates and joint venturesOne investor considered that it would be difficult for preparers to split a portfolio ofassociates and joint ventures between integral and non-integral, particularly for aconglomerate company that has different businesses, which would increase thecomplexity of performing the split. This investor noted that the proposals wouldlikely lead to diversity in practice and hence a lack of comparability.Another investor questioned the usefulness of having a split between integral andnon-integral associates and joint ventures on the face of the statement of profit orloss. He suggested the IASB should instead develop better disclosures about thecharacteristics and risk profile in the notes. He also commented that the proposedsubtotal of operating profit and income and expenses from integral associates andjoint ventures is misleading to users of the financial statements because thecompany does not have control over those investees and so the share of profit orloss of associates and joint ventures should not be mixed with the operating profitor loss of the company.A preparer considered that the existing disclosure requirements for associates andjoint ventures in IFRS 12 Disclosure of Interests in Other Entities in the notestogether with the proposal for the split of associates and joint ventures into integraland non-integral in the statement of profit or loss would be appropriate andsufficient for users of financial statements to understand how the company investsin the associates and joint ventures to develop their business.A preparer questioned whether the proposed subtotal of operating profit andincome and expenses from integral associates and joint ventures is intended tocapture all income and expenses related to associates and joint ventures. Shesuggested the IASB should provide additional guidance in this area to achieveconsistency in practice. For example, she recommended that the IASB shouldclarify whether finance costs incurred on a loan to integral associates and jointventures (that forms part of the carrying amount of the net investment in theseassociates and joint ventures) shall be grouped and presented above this subtotalin the statement of profit or loss.A practitioner commented that ‘significant interdependency’ in proposed paragraph20D of the ED would be a key factor in the determination of integral associatesand joint ventures and it is judgemental. The practitioner said the proposedclassification would be difficult to audit. Also, she mentioned that if a companyinvests in a portfolio of associates and joint ventures, the company may beuncertain whether there will be a significant interdependency between thecompany and the associates and joint ventures in the future, and hence they willbe classified as non-integral associates and joint ventures. She questioned howuseful the information about the split of integral and non-integral would be in thisscenario.
6.Aggregation and disaggregationAn investor expressed support for the aggregation and disaggregation proposals.There were no other specific comments.
7.Analysis of operating expensesOne investor questioned why the option to present the analysis of expenses in thenotes is proposed to be removed in the ED. He considered that the detailedanalysis of operating expenses should be in the notes so that the statement ofprofit or loss is concise and uncluttered, and noting that investors usually analysethe primary statements together with the corresponding notes. He suggested theIASB should provide additional examples to illustrate the minimum line items to bepresented in the statement of profit or loss.Another investor had a similar view that the statement of profit or loss should notbe overly detailed.
8.Unusual income and expensesOne investor said he welcomed the proposals, particularly basing thedetermination of unusual income and expenses on forward-looking information,which is consistent with investors using forward-looking information for their cashflow forecasts. He also shared his observations that an increasing number ofentities are disclosing non-recurring or similarly described items in their financialstatements and users would find it helpful to have a reconciliation of those itemsto IFRS specified totals or subtotals to understand how those items aredetermined.A preparer noted that the proposed definition would be subject to interpretationand suggested that the IASB should provide more guidance or real-life examplesto illustrate how to determine unusual income and expenses.
9.Management Performance Measures (MPM)
A preparer commented that the proposed disclosure requirements are excessiveand would increase significantly the work and costs for preparers. However theymay be confusing for less sophisticated users and users who are not familiar withIFRS.Another preparer raised similar concerns and shared her experience that entitiesmay provide additional disclosures to sophisticated analysts and investors onMPM to address their needs. However, providing such extensive disclosures toless sophisticated users of the financial statements would be overwhelming andmay not be understandable by them.A preparer commented that the scope of the MPM proposals is not comprehensiveas it only forms a sub-set of the Alternative Performance Measures as defined inESMA Guidelines on Alternative Performance Measures. The preparer alsoconsidered that there is insufficient time for users of financial statements tounderstand how the MPM proposals would provide them with useful informationand comment on the proposals. She suggested the IASB should carry out aseparate project to broaden the scope of MPM, and also provide more educationabout the current use of MPM to users and allow sufficient time for their feedback.Preparers also raised concerns about the practical difficulty and complexity inproviding sufficient information about how the MPM is calculated for auditors’verification.One investor shared his experience that it is currently difficult to understand theMPMs disclosed by entities. He is also skeptical of the usefulness of MPMs as theycould be easily manipulated by management. On the other hand, cash flows areharder to manipulate.Another investor agreed that the proposals on MPM may provide some usefulinformation, however, the extent of detail should be balanced with the incrementalcosts incurred by preparers. He thought that the most critical disclosure would bethe reconciliation from the MPM to the nearest IFRS specified total or subtotal,which could provide users with a better understanding of the underlyingperformance of the business.
10.EBITDAMost participants agreed with the IASB’s proposal not to define EBITDA.One investor considered the use of operating profit or loss before depreciation andamortisation as the IFRS specified subtotal is better than EBITDA as it is clearlydefined. However, he suggested the IASB should instead identify operating profitor loss before depreciation, amortisation, and impairment as the IFRS specifiedsubtotal to provide users with better insight on the free cash flows of an entity.
11.Statement of cash flowsOne investor commented that it is helpful to see the split of dividends paid fromintegral and non-integral associates and joint ventures, however, the costs versusbenefits of this proposal should be considered carefully.Another investor added that dividends paid from both integral and non-integralassociates and joint ventures are classified in the investing category in thestatement of cash flows. Therefore, he questioned why income and expenses fromintegral associates and joint ventures is presented in a separate category in thestatement of profit or loss, rather than in the investing category like income andexpenses from non-integral associates and joint ventures.
12.Further commentsClassification of fair value gains and losses on derivatives and of exchangedifferencesA preparer raised concerns that the principles for the classification of fair valuegains and losses on derivatives and of exchange differences, as summarised inparagraphs B39 and B40 of the ED, are complicated and difficult to understand.She also questioned why the presentation of derivatives would not bedifferentiated based on whether hedge accounting has been applied, meaningsuch presentation may not be useful to investors. She considered the existingdisclosure requirements under IFRS 7 Financial Instruments: Disclosures onfinancial risk management are sufficient for investors to understand the hedgingrelationships designated by an entity and how management manages the financialrisks of the entity. She also commented that the incremental costs incurred bypreparers to perform the proposed separate classification appeared to outweighthe benefits to users, unless there is a strong need for such information by users.Investors generally agreed with the preparer’s view and considered that theproposals for classification of fair value gains and losses on derivatives and ofexchange differences would provide limited benefits to them. One investorcommented that a balance should be made between the information needs ofinvestors, the work done by the preparers, and the competitive disadvantages ofdisclosing too much information to the public, particularly for public interest entities.