This master thesis deals with Staff Draft of Exposure
Draft IFRS X Financial Statement Presentation (IFRS X)and analysis whether it is a boon or bane for the world of international financial reporting. IFRS X is going to replace IAS 1 Presentation of Financial Statements and IAS 7 Statement of Cash Flows. The analysis is based on a four step approach:
1) identification of the deficiencies of IAS 1/IAS 7,
2) detection of the changes in the financial statement presentation due to IFRS X,
3) analysis of the criticisms on IFRS X and judgment thereon and
4) answer to the key question.
Within this master thesis, sample financial statements are prepared according to IAS 1/IAS7, IFRS X and IFRS X as adjusted as a result of the conclusions drawn in step 3.
Table of Contents
1. Introduction
2. What are the deficiencies of IAS 1 and IAS 7?
2.1 Deficiencies related to the content of IAS 1 and IAS 7
2.1.1 Availability of too many options in IAS 1 and IAS 7
2.1.2 Lack of valuable information due to missing requirements in IAS 1 and IAS 7
2.2 Deficiencies related to the surrounding circumstances of IAS 1 and IAS 7
2.2.1 Piecemeal development of IAS 1 and IAS 7
2.2.2 Missing convergence between IFRS and US GAAP
2.3 Conclusion and summary
3. What are IFRS X’s major changes to the financial statement presentation?
3.1 Disaggregation principle
3.2 Cohesiveness principle
3.3 Structure of financial statements
3.4 Concept of cash and cash equivalents
3.5 Layout of the statement of financial position
3.6 Classification of assets and liabilities
3.7 Operating cash flow
3.8 Analyses of changes in assets and liabilities
3.9 Remeasurement disclosures
3.10 Conclusion and summary
4. What are the major criticisms on IFRS X and the consequences thereof?
4.1 Disaggregation principle
4.1.1 General idea of the disaggregation principle and disaggregation degree
4.1.2 Location of disaggregated information
4.1.3 Disaggregation of income and expenses
4.2 Cohesiveness principle
4.3 Structure of the financial statements
4.3.1 Classification into the sections, categories and subcategory
4.3.1.1 Classification principle: item’s link to the activities
4.3.1.2 Classification level: items’ classification at the segment level
4.3.2 Content and right to exist of the sections, categories and subcategory
4.3.2.1 Business section and financing section
4.3.2.1.1 Separation of the business activities from the financing activities
4.3.2.1.2 Assignment of specific groups of line items
4.3.2.1.2.1 Equity
4.3.2.1.2.2 Liabilities
4.3.2.2 Income tax section
4.3.2.3 Multi – category transaction section
4.3.2.4 Discontinued operation section
4.4 Cash, cash equivalents and short term investments
4.4.1 Concept of cash and cash equivalents
4.4.2 Assignment of cash and short term investments
4.5 Layout of the statement of financial position
4.5.1 Is the term balance sheet adequate for IFRS X’s statement of financial position?
4.5.2 Is the layout of IFRS X’s statement of financial position beneficial?
4.6 Classification of assets and liabilities
4.7 Operating cash flow
4.8 Analysis of changes in assets and liabilities
4.9 Remeasurement disclosures
4.10 Conclusion and summary
5. Overall conclusion and summary
6. Appendices
6.1 Sample financial statements
6.1.1 Spirit Food and Beverages International AG
6.1.2 Legend to the symbols used in chapter 6.1
6.1.3 Financial statements according to IAS 1 and IAS 7
6.1.3.1 Statement of financial position
6.1.3.2 Statement of comprehensive income
6.1.3.3 Statement of cash flows
6.1.3.4 Statement of changes in equity
6.1.4 Financial statements according to IFRS X
6.1.4.1 Statement of financial position
6.1.4.2 Statement of comprehensive income
6.1.4.3 Statement of cash flows
6.1.4.4 Statement of changes in equity
6.1.4.5 Analysis of changes in assets and liabilities
6.1.4.6 Remeasurement disclosures
6.1.5 Financial statements according to IFRS X as adjusted to reflect the conclusions drawn in chapter 4
6.1.5.1 Statement of financial position
6.1.5.2 Statement of comprehensive income
6.1.5.3 Statement of cash flows
6.1.5.4 Statement of changes in equity
6.1.5.5 Analysis of changes in assets and liabilities
6.1.5.6 Remeasurement disclosures
6.2 Definitions of the term balance sheet
Research Objectives and Thematic Focus
The thesis evaluates the proposed "IFRS X" draft, which aims to overhaul the presentation of financial statements by replacing IAS 1 and IAS 7. The core research question addresses whether these proposed changes represent a benefit ("boon") or a disadvantage ("bane") for global financial reporting standards, particularly regarding transparency, comparability, and the information value for stakeholders.
- Identification and critical analysis of existing deficiencies in IAS 1 and IAS 7.
- Evaluation of the proposed IFRS X modifications, including disaggregation and cohesiveness principles.
- Assessment of the structural changes to financial statements (SFP, SCI, and SCF).
- Analysis of the costs and benefits for preparers and users, focusing on implementation challenges.
- Review of convergence efforts between IFRS and US GAAP through the lens of IFRS X.
Excerpt from the Thesis
4.3.1.1 Classification principle: item’s link to the activities
The comments about the classification principle, being items’ link to the activities, are the focus of this chapter. Positively, entity’s uniqueness is explained to the users, as space is left for considering entity specific aspects (Archambault & Sharp, 2009, p. 9; EY, 2009, p. 7). Insiders are able to perform better assignments than outsiders (FASB & IASB, 2009i, p. 13). The classification principle eases users’ comprehension of the business model needed for effective information utilization (Enevoldsen, 2009, p. 9). Further, meaningful insights into entity’s resources and business management are delivered (KPMG, 2009, p. 6).
The classification tends to be objective, because items’ relation to entity’s activities is given notation (EY, 2009, p. 6). The comparability between different entities is ameliorated, as a different classification of the same item employed differently by different entities creates helpful insights into the financial flexibility (Archambault & Sharp, 2009, p. 9). In contrary, it is claimed that the outcome of the classification approach leads to less comparable FS, since judgment is involved in the allocation. Individuals could draw other conclusions on the same matter. This affects the comparability between different entities respectively reporting periods of the same entity. Or, it ends in classification inconsistencies within the same entity and period. (BDO Global Coordination B. V. [BDO], 2009, p. 5; Wild, 2009, p. 1).
Due to the subjectivity, the classification approach offers the opportunity for an intentional false presentation (Wild, 2009, p. 2). E. g., derivatives performing as expected are classified in the operating category and, if they do not, they were officially acquired for speculative purposes assigned to the investing category. This allows manipulating the operating results.
Chapter Summary
1 Introduction: This chapter provides an overview of the joint performance reporting project between the FASB and IASB, outlining the project phases and the focus of the thesis.
2 What are the deficiencies of IAS 1 and IAS 7?: This section discusses the current limitations in IAS 1 and IAS 7, specifically noting the high number of options and the lack of consistent, transparent financial information.
3 What are IFRS X’s major changes to the financial statement presentation?: This chapter details the nine core topics of IFRS X, including the introduction of new principles like disaggregation and cohesiveness.
4 What are the major criticisms on IFRS X and the consequences thereof?: This central chapter evaluates feedback from stakeholders and experts regarding the proposed changes, identifying both potential benefits ("boons") and severe drawbacks ("banes").
5 Overall conclusion and summary: The final chapter synthesizes the research findings, weighing the costs versus the benefits and delivering a final judgment on the overall impact of IFRS X.
Keywords
IFRS X, Financial Statement Presentation, IAS 1, IAS 7, Disaggregation Principle, Cohesiveness Principle, Financial Reporting, Statement of Financial Position, Cash Flow, Financial Analysis, Accounting Standards, FASB, IASB, Convergence, Financial Statements
Frequently Asked Questions
What is the core subject of this master thesis?
The thesis examines the proposed IFRS X "Financial Statement Presentation" standard, which seeks to replace IAS 1 and IAS 7, and evaluates its impact on international financial reporting.
What are the primary themes analyzed in the work?
The work covers the disaggregation and cohesiveness principles, changes to the structure of primary financial statements, and the shift towards new classification categories for assets, liabilities, and cash flows.
What is the fundamental research goal?
The goal is to determine if the transition to IFRS X provides a net improvement for the financial reporting world or if the implementation complexities and potential for arbitrary classification create significant issues.
Which scientific methodology does the author employ?
The author uses a four-step approach: identifying existing deficiencies, detecting changes proposed by IFRS X, analyzing external criticisms and judgments, and concluding with a final assessment.
What is the focus of the main section of the thesis?
The main section (Chapter 4) provides a critical analysis of specific IFRS X proposals, gathering diverse expert opinions and empirical insights to assess the practical implications of the new accounting rules.
Which key terms characterize this research?
Key terms include IFRS X, financial statement presentation, disaggregation principle, cohesiveness principle, and accounting standard convergence.
How does IFRS X change the classification of assets and liabilities?
IFRS X moves away from a simple "current/non-current" classification based on the operating cycle to a stricter "one-year cut-off" approach and assigns items into sections like "operating" or "financing" based on their link to specific activities.
What is the author's final verdict on the "boon or bane" question?
The author concludes that IFRS X acts as a "bane" in its current proposed form, primarily due to excessive optionality, conceptual weaknesses in liability classification, and the high implementation costs that potentially outweigh the benefits for many entities.
- Arbeit zitieren
- M. A. in Accounting and Controlling Christian Franz Georg Zube (Autor:in), 2011, IFRS X Financial Statement Presentation – a boon or bane for the world of international financial reporting?, München, GRIN Verlag, https://www.hausarbeiten.de/document/177409
