In July 2014 the IASB added the Performance Reporting project to its research agenda, mainly in response to the strong demand from investors to undertake a project on performance reporting. In 2015 the IASB renamed the project to Primary Financial Statements.

In its Primary Financial Statements project the IASB is examining
possible changes to the structure and content of the primary financial
statements. The IASB's project is focused on:

  • Require companies to present additional defined subtotals in the statement of profit or loss;

  • Strengthen requirements for disaggregating information; and

  • Require companies to disclose information about management performance measures in the notes.

On 17 December 2019, the IASB published the ED General Presentation and Disclosure where it includes proposals to improve how information is communicated in the financial statements, with a focus on the statement of profit or loss. 

The ultimate objective is to replace IAS 1 Presentation of Financial Statements with a new Standard that would comprise new requirements on presentation and disclosures in the financial statements and requirements brought forward from IAS 1 with only limited changes to the wording.

EFRAG Draft Comment Letter

On 24 February 2020, EFRAG published its draft comment letter in response to the IASB's Exposure Draft 2019/7 General Presentation and Disclosures and seeks constituents' views on the proposals. Comments on the draft comment letter are requested by 19 June 2020, by close of business.

In its Draft Comment Letter, EFRAG welcomes the Exposure Draft and the IASB's efforts to improve the structure and content of the primary financial statements.

EFRAG supports the IASB's proposals to present an operating, investing and financing category in the statement of profit or loss to improve comparability and reduce diversity in practice. However, EFRAG has reservations over some of the proposals in the ED:

  • the newly created categories in the statement of profit or loss are not aligned with the presentation of cash flows in the statement of cash flows, however, they have  similar labelling

  • clear guidance is needed on the notion of 'entity's main business activity' to distinguish between categories in the statement of profit or loss; and

  • the ED proposals should consider the interaction with existing regulatory frameworks on presentation of financial statements;

EFRAG is also seeking views from constituents on the IASB's approach to consider as part of the financing category the income and expenses that arise from

  • cash and cash equivalents

  • time value of money on liabilities that do not arise from financing activities. 

EFRAG considers that separate presentation of integral and non-integral associates and joint ventures will result in relevant information for users of financial statements and enhance comparability. EFRAG highlights that such presentation will involve significant judgement and needs to be tested in practice.

EFRAG welcomes the IASB's efforts to provide guidance on management performance measures (MPMs) which are often used in practice and additional guidance on non-IFRS measures could bring more transparency and consistency on their use. However, EFRAG highlights a number of challenges in regard to the ED proposals and is seeking views of its constituents on a possible alternative narrower scope. EFRAG also suggests the IASB to further articulate the link between MPMs and IFRS 8 Operating Segments.

EFRAG welcomes the IASB's efforts to define unusual income and expenses and to require entities to disclose such items in the notes, however the definition of unusual items seems to be rather narrow, as it focuses on whether expenses/income will occur in the future.

During its consultation period, EFRAG will reach out to national standard setters, users of financial statements, preparers, regulators, business associations and other accounting experts to test the practical application of the ED proposals.

EFRAG extended its consultation period on Primary Financial Statements

Recognising the impact of the COVID-19 pandemic, on 17 April 2020 the IASB decided to extend the consultation period of the Exposure Draft on General Presentation and Disclosures by approximately three months

EFRAG adjusted its timelines accordingly, considering the priorities of its stakeholders during the pandemic and extended the comment period for its Draft Comment Letter on the ED until 28 September 2020, and extended its period of field testing until 31 August 2020. Despite the difficult times, EFRAG encouraged companies and financial institutions to participate, to the extent possible, in the field-tests on the IASB’s ED. EFRAG allowed flexibility in terms of communication and timing and adapt to the individual company’s circumstances. Close coordination with the IASB was ensured. If 

EFRAG Outreach activities

EFRAG launched a number of outreach activities with different types of European stakeholders and jurisdictions. These outreach activities were converted into public webinars and online events, with technical support by EFRAG Secretariat. In particular, EFRAG launched the following joint outreach events:

  • Input on the IASBs Exposure Draft General Presentation and Disclosures: Online joint outreach event hosted by EFRAG, FSR – Danish Auditors, the Confederation of Danish Industry (DI) and the IASB (14 May 2020). For more details, please click here.

  • Time for a facelift? A new look for the income statement (Presentation):  Online joint outreach event hosted by EFRAG, EFFAS, BVFA/ABAF and the IASB (19 May 2020). For more details, please click here.

  • Time for a facelift? A new look for the income statement (Disclosures):  Online joint outreach event hosted by EFRAG, EFFAS, BVFA/ABAF and the IASB (19 May 2020). For more details, please click here.

  • Changing the Income Statement – Norwegian perspectives: Online joint outreach event hosted by EFRAG, NASB, the NFF and the IASB (17 June 2020). For more details, please click here.

  • Outreach event on PFS with Accounting Standards Committee of Germany (ASCG) on 7 September and 11 September 2020. for more details please click here.

  • Joint outreach event PFS with Dutch Accounting Standards Board (DASB) on 16 September 2020. for more details please click here.

EFRAG Field-tests

On 6 March 2020, EFRAG published an invitation for companies to participate in the field-test on the IASB's project Primary Financial Statements. EFRAG, in close coordination with European National Standard Setters and the IASB, conducted field-testing of the IASB's proposals included in the Exposure Draft ED/2019/7 General Presentation and Disclosures (ED), which were published in December 2019. The purpose of the field-testing was to identify potential implementation and application concerns, to determine whether there is a need for additional guidance, and to estimate the effort required to implement and apply the proposals.

The fieldwork was designed to provide EFRAG and the IASB with evidence of:

  • how the proposals would be implemented in practice

  • any need for further guidance, and

  • the extent of process or system changes that may be needed.

EFRAG organised the following outreach activities:

  • Field-Test Workshop on 7 July with preparers of financial statements – corporates (for more details please click here)

  • Field-test workshop on 7 July with preparers of financial statements – Financial Institutions. For more details, please click here​

  • Field-test workshop on 24 August with preparers of financial statements – Financial Institutions and Corporates. For more details, please click here​.

  • Preparers roundtable on Primary Financial Statements (webinar) on 1 September 2020 (for more details please click here)​. 

EFRAG Final Comment Letter

On 2 November 2020, EFRAG issued is Final Comment Letter on Primary Financial Statements

In its Final Comment Letter, EFRAG welcomes the Exposure Draft ('ED') and the IASB's efforts to improve the structure and content of the primary financial statements.

EFRAG supports the IASB's proposals to present an operating, investing and financing category in the statement of profit or loss to improve comparability and reduce diversity in practice. However, EFRAG has reservations over some of the proposals in the ED. For example:

  • clear guidance is needed on the notion of 'entity's main business activity' to distinguish between categories in the statement of profit or loss;

  • the proposals should consider the interaction with existing regulatory frameworks on presentation of financial statements;

  • the newly created categories in the statement of profit or loss are not aligned with the presentation of cash flows in the statement of cash flows, despite using similar labelling;

  • the 'free' accounting policy choice in paragraph 51(b) of the ED (for entities that provide financing to customers as part of their main business activities), while being useful for banks, may result in the loss of relevant information for users when used by non-financial institutions (e.g. manufacturer providing financing to customers); and

  • the IASB should further consider how its proposals should be applied in specific circumstances, including the interaction of the IASB's proposals with IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments;

EFRAG considers that the distinction between integral and non-integral associates and joint ventures could provide relevant information to users. However, EFRAG is concerned that the IASB's proposed definition would involve significant judgement and, therefore, proposes that the IASB:

  • clarifies the 'main business activity', 'generate a return individually and largely independently of the other assets of the entity' and 'significant interdependency';

  • expands the new paragraph 20D of IFRS 12 Disclosure of Interests in Other Entities to widen the scope of integral associates and joint ventures, include additional indicators and more examples with the objective of reducing the level of judgement involved; and

  • requires the presentation of the results of all associates and joint venture​s below the subtotal 'operating profit or loss', as a separate line item within the subtotal 'operating profit or loss and income and expenses from associates and joint ventures'. In addition, EFRAG suggests that the IASB requires the split between 'integral' and 'non-integral' in the notes to the financial statements. EFRAG notes that in accordance with paragraph 66 of the ED, entities can always make the split (within the subtotal that includes all associates and joint ventures) on the face of the financial statements if such split is considered useful.

EFRAG supports the IASB's proposal to continue requiring entities to present an analysis of expenses using either by-function or by-nature method, based on whichever method provides the most useful information to the users of financial statements. EFRAG recommends the IASB to further investigate the cost/benefit profile of its requirement to disclose on a by-nature basis in the notes when presenting by-function on the face of the financial statements, and, if appropriate, consider focusing on information that is most needed by users.

EFRAG welcomes the IASB's efforts to define unusual income and expenses and to require entities to disclose such items in the notes, however the definition of unusual items seems to be rather narrow, as it focuses on whether expenses/income will occur in the future.

EFRAG welcomes the IASB's efforts to provide guidance on Management Performance Measures ('MPMs'). Nonetheless, EFRAG considers that not only subtotals on the face of the statement of profit or loss but also other measures, such as indicators of financial position or ratios, should be included in the scope of this requirement. In addition, EFRAG invites the IASB to consider:

  • making the definition of public communication narrower, limiting the scope to the MPMs presented in public communications released jointly with the annual or interim reports;

  • excluding from the scope the performance measures required by regulators; and

  • extending the scope to cover possible MPMs presented in the financial statements but not in other public communications.

EFRAG questions also the cost/benefit profile of the requirement to present the split of tax and non-controlling interest components for all the items when a performance measure is adjusted.

Finally, EFRAG considers that the IASB has not sufficiently articulated the link between MPMs and IFRS 8 Operating Segments and suggests the the IASB requires an explanation of how MPMs interact with performance measures already presented under IFRS 8.