Khalilah H.

Y
1501186392
03PAF
Summary
The Future of Financial Statement
The FASB and the IASB have been working together since 2002 to improve and converge U.S.
generally accepted accounting principles (GAAP) and IFRS. As of 2009, Japan and China were
also working to converge their standards with IFRS. The FASB and IASB have completed their
consideration of the main issues and are expected to release an Exposure Draft of a proposed
standard in the second quarter of 2010, with a final standard expected in 2011. The boards have
for the present decided to require:
- assets, liabilities, revenues and expenses be categorized as operating, investing, financing, taxes
or discontinued operations,
- the direct method of preparing the Statement of Cash Flows, with certain indirect information
presented in the notes,
- a "roll forward" presentation in the notes of significant Statement of Financial Position line
items, and
- disaggregation of information by function (e.g., cost of sales, selling and marketing) on the face
of the Statement of Comprehensive Income and by nature (e.g., rent, payroll) in the notes.
Scope
The Boards intend for the proposal to apply to all entities except:
Not-for-profit entities

Entities within the scope of the IASBs forthcoming IFRS for Private Entities

Benefit plans within the scope of IAS 26, Accounting and Reporting by Retirement
Benefit Plans, or FASB Statement No. 35, Accounting and Reporting by Defined Benefit
Pension Plans

This is a section describes the key anticipated provisions of the proposed standard :
Statement of Financial Position
Assets and liabilities are to be classified as business or financing activities.
Business activity is to be segregated between operating, investing and financing arising from
operating activities.
o the operating category reflects the entitys business activities that relate to the generation
of revenues (e.g., accounts receivable, inventory, accounts payable)

o the investing category reflects the entitys activities that generate non-revenue income
(e.g., available-for-sale securities, investments in affiliates)
o the financing arising from operating activities subcategory reflects activities that (a) do
not meet the definition of financing activities, (b) are initially long term, and (c) have a
time value of money component that is evidenced by either interest or an accretion of the
liability due to the passage of time (e.g., accrued pension liability, lease liability)
o Financing activity includes items that relate to an entity obtaining (or repaying) capital
and consist of two categories; debt and equity.
o Income taxes and discontinued operations are to be displayed separately from business
and financing activities.
o Entities are to display subtotals for total assets, total liabilities, short-term assets, shortterm liabilities, long-term assets, and long-term liabilities.
Information is to be presented in a manner that best reflects the way the assets or liabilities are
used by the entity in operating the business. For example, an entity may have two reportable
segments, manufacturing and retail, each with a portfolio of financial instruments. In the
manufacturing segment, the financial liabilities may be used to fund ongoing operations and
therefore will be classified in the financing liability category. Alternatively, in the retail segment,
the financial instruments may provide a return but will not be used to fund the activities of the
retail business and therefore will be classified in the investing category
Statement of Comprehensive Income
As with the Statement of Financial Position, income and expenses are to be classified as business
or financing activities.
o Business activity is to be segregated among operating, investing and financing arising
from operating activities.
o Financing activity includes items that relate to an entity obtaining (or repaying) capital
and consist of two categories; debt and equity.
o Income taxes and discontinued operations are to be displayed separately from business
and financing activities.
o Entities are to display other comprehensive income, net income, total comprehensive
income, and earnings per share. The proposal does not change how EPS is calculated.
All entities are to disaggregate their income and expense items by function on the Statement of
Comprehensive Income and provide information disaggregated by nature in the notes. The FASB
makes a distinction for the information provided by nature between single segment entities and
multi-segment entities. Information presented by nature is to be included in the segment note for
multi-segment entities, and in a separate note for single segment entities.

o Function refers to the primary activity in which an entity is engaged, such as selling
goods, providing services, etc. Nature refers to the economic characteristics or attributes
that distinguish assets, liabilities, and income and expense items (e.g., disaggregating
total revenue into wholesale revenues and retail revenues, or disaggregating total cost of
sales into materials, labor, transport, and energy costs).
Statement of Cash Flows
Cash flows are to be presented using the "direct method". A reconciliation from operating income
to net cash from operating activities is to be presented in the notes to the financial statements
o All entities, including financial services entities, will be required to present a direct
method Statement of Cash Flows.
o In preparing a direct method Statement of Cash Flows, entities with funds held on deposit
are to present cash inflows and outflows so that the Statement of
o Cash Flows reflects transactions between the entity and its depositors as if they were
settled by external funds.
o The Exposure Draft will also seek input on the costs and benefits of this type of direct
method Statement of Cash Flows from preparers, auditors, and users of financial services
entity financial statements.
All entities (except nonpublic entities) will be required to provide a "roll-forward" presentation
of the analysis of changes in significant assets and liabilities. This presentation would include an
analysis and explanation of the nature of transactions and other events that gave rise to changes
in the account balances. Each roll-forward should separately distinguish:
o cash inflows and cash outflows
o noncash (accrual) transactions that are repetitive and routine in nature (e.g., credit sales,
wages, material purchases)
o noncash transactions or events that are nonroutine or nonrepetitive in nature (e.g.,
acquisition or disposition of a business)
o accounting allocations (e.g., depreciation)
o accounting provisions and reserves (e.g., bad debts, obsolete inventory)
o remeasurements -- remeasurements are amounts recognized in comprehensive income
that reflect the effects of a change in the net carrying amount of an asset or liability, and
result from: (a) a change in (or transacting at) a current price or value; (b) a change in an
estimate of a current price or value; or (c) a change in any estimate or method used to
measure the carrying amount of an asset or liability.
DataLine for examples of the expected form and content of the financial statements under the
proposed model. The Appendix includes the following:

Statement of Comprehensive Income

Statement of Financial Position
Statement of Cash Flows
Indirect Reconciliation of Operating Cash Flows
A note disclosure of expenses disaggregated by nature
Analysis of changes in select significant line items on the Statement of Financial
Position.