18 December 2015

EFRAG/EFFAS/AIAF/IASB´s summary report on profit or loss and other comprehensive income

EFRAG, EFFAS, AIAF and the IASB published a summary report of their investor outreach event in which participants discussed the role of profit or loss (P&L) and other comprehensive income (OCI).

In May 2015, the IASB published an Exposure Draft ED/2015/3 Conceptual Framework for Financial Reporting (the ‘ED’) which provides a description of the statement of profit or loss and suggests what OCI could be in undefined circumstances. The ED also seeks feedback on whether there is support for the proposed description of the statement of profit or loss and for proposals on the use of OCI.

To seek the views of users on the role of P&L and what should be the purpose of OCI and its separation from P&L, the EFRAG, the EFFAS and the AIAF, in cooperation with the IASB, organised a joint outreach event that took place on 22 October 2015 in Milan.

The summary report of the event describes the main comments that EFRAG - EFFAS - AIAF - IASB received in the event. The main observations made can be summarised as follows:

•       the financial information obtained from the statement of profit or loss (P&L) is key and in many cases P&L is the starting point of investors’ analysis. Nonetheless, investors and creditors need a complete set of financial statements to properly assess the entity’s performance, the quality of net assets and quality of earnings;
•       IFRS guidance on Other Comprehensive Income (OCI) is inconsistent, complex and difficult to understand. Hence, the IASB should define what financial performance is, clarify the meaning and importance of OCI and how the distinction between P&L and OCI should be made in practice;
•       Some panel members called for a single set of definitions of non-GAAP performance measures, such EBITDA and EBIT.
•       panel members highlighted the importance of having, for comparability purposes, a “more consistent breakdown of the accounts” in the income statement;
•       panel members and participants referred to goodwill as a broad issue that affects both the statement of financial position and the income statement and considered that this was an area that needed to be revisited by the IASB;
•       panel members welcomed the reintroduction of the notion of prudence but noted that the notion of prudence could be understood as a broader concept that could help users in assessing stewardship and in understanding whether management is taking more risks than shareholders are comfortable with; and
•       EFRAG and the IASB should continue to seek views from users.

Full press release

Full report

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