ED 105 Statement of Financial Performance - Amendments to AASB 1018/AAS1

27 May 2002

Mr Keith Alfredson
Chairman
Australian Accounting Standards Board
PO Box 204
Collins Street West VIC 8007

Dear Keith

ED 105 Statement of Financial Performance - Amendments to AASB 1018/AAS1

The comments of the Group of 100 on ED 105 are set out below. While supporting the Board's initiative to review AASB 1018/AAS 1 the G100 is concerned that the review is occurring so close to the annual reporting date for most companies. The issue of amendments to Standards at this stage of the financial year is likely to impose significant burdens on most companies and to increase the uncertainty as to what set of requirements are likely to be applicable. Companies are seeking a resolution of the uncertainty regarding financial reporting requirements to facilitate planning and the design of systems required for their implementation and compliance. In addition, this is occurring in an environment where further changes are expected in the short-term as part of the Board's convergence and harmonisation policy.

Specific comments are:

a. Application of proposed amendments to annual reporting periods ending on or after 30 June 2002.

The G100 believes that at this stage of the financial year the amendments should not be mandatory. The operative date of the amendments should be delayed beyond 30 June 2002 to, say, 31 December 2002. In the event of a delay of this nature companies will be able to implement the amended requirements for 30 June year ends by adopting the Standard early as provided in the Corporations Act if they are in a position to do so.

b. Proposed clarification of requirements relating to the face of the statement of financial performance.

The G100 supports the proposals to clarify that:

All revenues and expenses in respect of ordinary activities may be disclosed on the face of the statement of financial performance whether in total or disaggregated;
Where not disaggregated on the face of the statement of financial performance a reconciliation to detailed disclosure in the notes is required;
Disclosure of 'significant' items may be made on either the face of the statement of financial performance or the notes.

However, we strongly believe that the constraints placed on the manner of presentation of the 'significant items' restricts the ability of directors to report information, which in their judgement, best communicates the performance of the underlying business of the company in the most meaningful way to shareholders and other users. The G100 does not support this recommendation.

In addition, the G100 does not support the exclusion of the use of sub-totals on the face of the statement of financial performance prior to certain significant items. This, if implemented, would also severely detract from the usefulness of the statement of financial performance as presented by a company. Rather than detracting from their usefulness the use of sub-totals allows analysts and other users to quickly assess the performance of the company including an understanding of the effect of significant items on the company's results. However, while advancing this view we believe that the sub-totals included should not be given any greater prominence than the line items for profit or loss after tax.

c. Proposed clarification of the disclosure of expenses by nature or function.

The G100 supports these proposals which clarify that expenses must be classified either by nature or by function (but not a mixture) on the face of the statement of financial performance. A benefit of these proposals, taken in conjunction with the proposals regarding sub-totals, is that an entity classifying expenses by nature is able to include a sub-total for EBIT and EBITDA amounts on the face of the statement of financial performance.

d. Proposal to present a net gain or a net loss on the disposal of property, plant and equipment as a revenue or an expense.

The G100 believes that this proposal should be extended to include the disposal of all non-current assets including investments, intangible assets, long-term receivables and controlled entities and businesses. The disposal of non-current assets is not central to the operating activities of entities and limiting the 'relief' to property, plant and equipment only partly resolves the difficulties. While we acknowledge the difficulties this may present in terms of the consistent application of the concepts of revenue and expense, we believe that a change is justified on pragmatic grounds. For example, the 'grossing-up' of the effect of the disposal has the potential to distort the comparability of both revenues and expenses, particularly where such transactions are variable in amount and incidence. In addition, where proceeds are cash information content would not be lost because gross amounts are required to be included in the statement of cash flows.

We suggest that the net gain/loss on disposals of non-current assets be disclosed as a separate line item similar to disclosure of the equity share of profit/loss of associates with the gross amounts being disclosed by way of note.

e. Proposed clarification that disclosure of a reconciliation with foreign GAAP is not an alternative statement.

The G100 supports this proposal. The G100 believes that in the final analysis the test of success of international convergence and harmonisation will the absence of the need to prepare reconciliations to the requirements of another jurisdiction.

f. Proposal that revenue disclosures transferred to AASB1004/AAA15 should apply only to reporting entities.

The G100 supports this proposal.

g. Other

The inclusion of paragraph 5.6.4 may result in practical difficulties in compliance where the requirement is introduced near to the reporting date. For example, for some entities difficulties may arise in the collection of the information for, say, the presentation of comparatives.

Yours sincerely

Tom Pockett
National President