Financial position and comprehensive income

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1.0 Introduction

The objective of the discussion paper (DP) is to analyze the changes through the three objectives received from board's input by various financial statement users and members of advisory group. The 3 objectives are a) cohesiveness of a financial statement, b) information disaggregation and c) liquidity and financial flexibility. It is a step taken to unify the standard across countries and creates standardization among the issuance of financial statements.


BS good summary is just providing all necessary info in a understandable manner relevance is whether the info are useful for user or too much details that user doesn't need quality of analysis is whether user can do analysis and evaluation on performance based on the info, info reliable or not i think info subject to management's manipulation should go under quality of analysis, write more on calculating ratios *like management approach, sure management can do something n present it the way they prefer

2.0 Evaluation of the Statements of Financi al Position and Comprehensive Income

2.1 Good Summary

The proposed presentation model not only separate business activity from financing activities, but also further disaggregates information into sections, such as separating business activity into operating and investing activities.

Through cohesiveness, my view is that users are able to analyze information in greater depth and compare between financial statements as it is standardize across all companies within similar industries. This would allow users to see the break-down of resources used and the different activities by its function and enhance decision-making and increase their knowledge for investing purposes.

In contrast, it has created complexity of financial statement for users as the majority are used to the current financial statement too. Moreover, the change in format will lead to complication as management will need to re-adjust to it. Therefore, users might find it difficult to search for certain information as it is too lengthy with details.

In my opinion, the new presentation model needed much room of improvement to compromise users from different sector and industries. The DP has not gain high percentage of recognition as it will unnecessarily complicate the users.

2.2 Relevance

However, in my view, a good financial report needs to presents important and relevant details for the interest of shareholders and investors that plan to make investment in the company. It also should not confuse users with mass details and blur off important details with lengthy and fancy report as users has no accounting or financial background to interpret it, therefore, what users need to know is what they can conclude directly from the report. This is an irrelevant change to the company as it can confuse shareholders with the much yet irrelevant information in decision-making.

Furthermore, the level of relevancy varies according to industries which focus at different section of the financial statement. For example, the proposed presentation model is not relevant to banks as they focus mainly at one section, thus becoming irrelevant to users.

2.3 Quality of Analysis

As for the quality of analysis, users are able to evaluate the company's business performance based on the breakdown of information provided to calculate the ratios. It is completed and is comparable against the industry's benchmark to determine the company's business performance. Therefore, the degree of accuracy of financial statement are more reliable as calculation and figures are used in calculation and compared to previous years, thus, a vast difference in total profit or loss between previous and current year will do the explanation.

Through this, the disaggregation of income and expenses are prepared by top management, therefore is subject to management manipulation which would affect the quality of financial statement as they desire to present a highly figured profit to enhance company's financial performance and attract investors.

performance based on the info (management approach= present favourable??)

like the classfication showing all the breakdown, so easier so analyst to calculate ratios

*thus making management judgments being heavily relied, therefore entities are persuaded in disaggregating income and expenses. By doing so, users can categorized the income and expense based on the function and nature. However this way will only distort the quality of the financial statement as to approach nature is very subjective due to the management degree of favorable.

3.0 Critical Analysis

There are various feedbacks of advantages and disadvantages from different professional bodies on the new proposed model, whether it serves as a more useful decision-making tool to users in different aspects.

3.1 Decision Usefulness


According to the Chairman of The Ohio Society of CPAs, the separation of operating business activities and financing activities is useful for decision-making as financial leverage is the outcome of alternative uses in debt and equity that could affect the company's relative reported total profit and loss. It is vital for users to make comparison between companies based on the reported results for better guides to make decisions before making investment. Furthermore, Chairman of Accounting Standards Board (ASB) also stated that particularly in the statement of comprehensive income, it is more user-friendly as users can easily differentiate between the primary activities of the business and other activities.


However, ASB are also concerned about the classification of assets and liabilities in the statement of financial position as it will result a lack of total assets and total liabilities sub-totals and chances of similar assets and liabilities will not be categorized together. Thus, decision-making was not enhanced by the implementation of cohesiveness throughout the financial statement as it becomes more complicated for users knowledge.

Moreover, coming from financial institutions' point of view, disaggregation does not apply to users of statement of financial position than the current presentation method presented by most financial institutions, as generally most banking industry present their activities within business activities (British Bankers' Association, 2009). (Australian Bankers' Association Inc, 2009) also commented that very few transactions will be categorize under financing section due to nature of banks, causing unnecessary complication for users to make decisions while accessing the financial statement and additional cost to companies for no extra benefits.


3.2 Improvement of Comparability


There is an increasing demand internationally to replace ‘two-statement approach' (TSA) with a single statement of financial performance (SSFP). A questionnaire was conducted among more than 1000 members by the Institute whether should a SSFP be introduced in preference to the existing ‘two-statement approach', resulting in 72% supporting it and 23% of members strongly agreeing the argument in favor (Beale and Davey, 2001).

The board believes that a SSFP is easier for non-expert users to search for information as they only need to look at one financial statement on all non-owners changes in an entity's net assets. Majority of non-expert users often overlook the Statement of Movement in Equity (SME) as it can be bypass in SFP and be reported in SME. Thus, better comparability for users among companies and international harmonization is further enhanced through the implementation of SSFP (Beale and Davey, 2001).

A gainst

Nonetheless, the remaining 30% members opposed the introduction of SSFP. They commented that average users might be confused with all information lumped in SSFP, but have no trouble finding information with TSA as the approach of information segregation is user-friendly (Beale and Davey, 2001). Also, it is supported by Committee of European Banking Supervisors (CEBS) that SSFP will ‘remove the distinction between P&L and other recognized income and expense, and to suppress the reclassification adjustments between these categories'.

Besides, management approach in classifying financial information is useful because financial information produce are based on the primary assets and liabilities used and activities in the company. It is recorded as how the company thinks it might be useful to users, rather than following specific rules that sometimes are not even applicable to the companies and users (Deloitte & Touche LLP, 2009).

Moreover, the classification of financial information in management approach reduces financial statement comparability as users are not able to compare the financial status among companies, but it is most useful to users about the company's business model (University of Cambridge, 2009). KPMG (2009) believes that information regarding on how the companies' activities and resources are handled should be given at its best to the users for a better analysis of the company's cash flow. In their view, they perceive that presentation of items is the most effective to show differences of how companies handle their resources than “using different measurement bases”.


All in all, most people commented that classification of financial statement using management approach only decreases the comparability and not increasing it, but the benefits of it still outweighs the cost.

3.3 Subjectivity and Cost


Management approach

DASB (2009) agrees that the changes made would benefit any company overall and they suggested that amendments should be made for clearer perception of definitions. Due to the structure of the DP which is based more on private sector, most private sector entities would find the changes useful because private sector entities have different features and has less complicated operating environment

*Additionally, NSW Treasury (2009) responded that since the management of an entity would know its own business better than others. Thus, the production of useful information to users would be available. Moreover, AASB (2009) agrees the use of management approach would be beneficial if there is a framework to follow as it would be likely to decrease arbitrariness as well as in meet users' requirement


Deloitte & Touche LLP (2009) and University of Cambridge (2009) stated that management approach is subjective in nature; therefore, companies within the same industries with similar activities might categorize information differently from the other as opinion varies in individuals, thus, it is open to manipulation of financial statement within organization. Furthermore, NSW Treasury (2009) justified that the subjectivity of management also increases the risk of manipulation as it is difficult to query the accuracy of details. Although each classification are explained through accounting policy, certain accounts are classified by the term “management view”, therefore not much questions are raised against it and are assumed true and fair, leaving the benefits for the management.

Additionally, DASB (2009) also stated that to realize the new proposed format, cost will indefinitely outweigh benefits as the need for proposed changes in new format are lack in detail. They commented that the field test was not done prior to the DP. Therefore, a cost-efficient report is not possible to produce a good disclosure that serves the users' need of financial statement.

Moreover, as required by the new presentation model, the cost of implementing the system and operation changes within banking industries will be outweighing the benefits because currently income and expenses are categorized by its nature and now it is required to be categorized by function, it will caused complication and extra ‘significant judgment' within management to prepare the financial statement (Australian Bankers' Association Inc, 2009).


4 .0 Quality and Quantity of information resources

Most information used is relevant as those are recent comments dated in 2009.

Also, information is reliable because it is taken from professional bodies compiled by FASB.

All comments and articles are found

5.0 Conclusion