Academic journal article Journal of Business and Accounting

Financial Statement Presentation: A Sneak Peak at the Proposed Format

Academic journal article Journal of Business and Accounting

Financial Statement Presentation: A Sneak Peak at the Proposed Format

Article excerpt

ABSTRACT

Under current US GAAP and iGAAP (i.e., IFRSs), alternative formats for statement presentation are allowed with transactions/events not necessarily being reported or classified consistently from one statement to another. The FASB and the IASB have both recognized the potential problems in this area with each independently adding a financial reporting project to their agendas in 2001. In 2004, the two rule-making bodies joined forces to conduct a joint project on financial reporting to establish a common international standard to improve how information is organized and presented in financial statements as part of the overall international convergence movement. This paper overviews the results to date of this joint FASB-IASB project on financial statement presentation.

INTRODUCTION

A company's financial statements are central to financial reporting. Investors, creditors, and other external users look to these statements for information regarding the financial position, cash flows, and operations of an entity and frequently consider them key resources for decision making. However, under current US GAAP and /GAAP (i.e., IFRSs), alternative formats for statement presentation are allowed with transactions/events not necessarily being reported or classified consistently from one statement to another. Thus, the linkage among the financial statements as well as the relationships among the items being reported is frequently difficult for users to understand.

The ever-increasing internationalization of business has only exacerbated this situation. As businesses expand globally, so does the need for consistent financial reporting of events and transactions in the financial statements. While the FASB and the IASB have committed to a program of harmonization of US GAAP and /GAAP and have taken many steps toward such a convergence, the presentation of information in the financial statements is governed by two separate and divergent sets of rules. International accounting standards, or IFRS, provide minimum presentation requirements and US GAAP provides only fragmented guidance presented in a piecemeal fashion throughout a variety of reporting standards. This situation simply enhances opportunities for companies to apply their own unique interpretation of the requirements while still complying with those requirements. Thus, comparability between different entities' financial statements and the usefulness of such statements for users is lessened. This is particularly true for those companies who must comply with both US GAAP and IFRSs - whose rules must be followed?

The FASB and the IASB have both recognized the potential problems in this area with each independently adding a financial reporting project to their agendas in 2001. In 2004, the two rule-making bodies joined forces to conduct a joint project on financial reporting to establish a common international standard to improve how information is organized and presented in financial statements as part of the overall international convergence movement. This paper overviews the results to date of this joint FASB-IASB project on financial statement presentation. The first section provides a time line of project activities with the second section summarizing the proposed guidelines for the financial statements as a whole. The third section compares financial statements prepared under the current format with those prepared under the proposed format. The fourth section discusses the results from selected FASB-IASB outreach activities and the final section presents the current status of the project and looks toward the fixture of financial statement presentation.

TIME LINE OF THE JOINT PROJECT

The revision of the basic financial statements was originally initiated to address several long-standing user concerns: the lack of a common approach for presenting information in financial statements particularly on a global basis, the lack of linkage and consistency in reporting information in the financial statements, and the lack of disaggregation of information in the financial reports themselves. …

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