Disclosure initiative: proposed amendments to IAS7

Comments from ACCA to the International Accounting Standards Board (IASB)
17 April 2015

General Comments

We have some reservations about the appropriateness of this exposure draft (ED), principally concerning whether it:

  • Amends IAS7 without substantially satisfying user needs in this area
  • Marks a further step towards IFRS covering what have been non-GAAP measures which should first be the subject of a more comprehensive consideration of the boundary of standardised financial reporting.

On balance the proposed amendment to IAS7 should nonetheless be made as it should provide some useful extra information, without requiring significant effort or costs on the part of preparers.


Specific comments

Q1. This exposure draft of proposed amendments to IAS7 forms part of the disclosure initiative. Its objectives are to improve:
(a) information provided to users of financial statements about an entity’s financing activities, excluding equity items; and
(b) disclosures that help users of financial statements to understand the liquidity of an entity.
Do you agree with the proposed amendments in paragraph 44A and 50A?

We are concerned that users are requesting a net debt reconciliation, and the proposals in 44A by not including other forms of debt or cash and cash equivalents will not achieve that.  

We also note that net debt reconciliations are currently a non-GAAP item, and consequently that with this ED, IFRS may be extending further into the provision of such items in response to demands from analysts and others.

These concerns cast some doubt on whether the amendments should be made at all.

On the other hand, we note that information about the movements in non-equity finance due to business combinations or foreign currency movements, for example, will be new or more clearly presented information. These, together with the existing reconciliation for cash and cash equivalents, will go some way towards providing key components of a net debt reconciliation. We consider that this information should not involve much cost or effort for preparers to produce. BC8 on page 16 also notes that preparers that wish to prepare a net debt reconciliation could always do so.

Other more detailed comments we have are:

  • The reference in BC8 to net debt may undermine the clarity of whether the disclosure required in 44A could be net or gross.
  • Does the reference to “each item” in 44A mean the reconciliation would have to be at a similar level of granularity as in the balance sheet?
  • What does the reference to “…cash flows have been, or would be…” mean in 44A? If it is to non-cash movements, should this not be made clearer?

On balance we accept the proposed change as a compromise, but it needs to fit in with the approach eventually adopted by IASB in relation to what might be perceived as non-GAAP measures. We understand that this broader project will be subject to consideration at a later point in the disclosure initiative.

The second disclosure requirement proposed in paragraph 50A seems a reasonable one, but it appears to be covered and therefore already required by paragraphs 48 to 50 of IAS7. It might be better if the tax issue were included as an example into the existing text.

Q2. Do you agree with the proposed transition provisions for the amendments to IAS7 as described in this exposure draft?

We agree with the retrospective application. As noted above, we do not think that providing this information will involve significant cost or effort for preparers.

Q3. Do the proposed IFRS taxonomy changes appropriately reflect the disclosures that are set out in the proposed amendments to IAS7 and the accompanying illustrative example?

We agree that the proposed list of elements to be added to the IFRS taxonomy should be limited to the information that would be required by the standard or included in the illustrative example. We have no further comment on the taxonomy changes.

See also our response to Q4.

Q4. As referenced in paragraph BC20, the IASB is holding a trial of a proposal to change the IFRS Taxonomy due process. Views are sought on the following:
(a) Do you agree with the publication of the proposed IFRS Taxonomy Update at the same time that an Exposure Draft is issued?
(b) Do you find the form and content of the proposed Update useful?

We recognise that the IFRS taxonomy needs to be updated properly and the opportunity for interested parties to input to that is important. However we are aware that different parties may comment on the changes to the standards from those who may comment on the taxonomy, so would prefer the changes to the content of the Standard to be exposed separately to the related taxonomy changes.

Also, the taxonomy should be updated only when amendments are finalised. Taxonomy updates may be best done as a batch, collecting together amendments to IFRS with a common application date.

ACCA will be considering these issues and responding to any due process change in due course.