1. Research Fellow Daehwa Jung Financial Statement Presentation Agenda-G-2

2. Contents 1 Background Working Group Discussion Issues Summary

3. Contents 2 Working Group Summary Background Discussion Topics

4. Background 3 Establish Global Standard Project Objective Improve Usefulness of FS The Boards’ Goal Joint Project IASBFASB

5. Background continued Steps for the Financial Statement Presentation(FSP) Project Discussion Paper(DP) published: Oct. ‘08 Comment period given: until Apr. ‘09 1 st AOSSG meeting: Nov. ‘09 Staff Draft posted: Jul. ‘10 2 nd AOSSG meeting: Sep. ‘10 Exposure Draft(ED) expected to be issued: Q1 of ‘11 Final standards expected to be issued: Q4 of ‘11 4

6. The IASB Staff Draft of ED on FSP The IASB Staff Draft on FSP Reflects the cumulative, tenative decisions made by the boards. Includes almost all important issues related to FSP Core principles of FSP are Portraying a cohesive financial picture, and Disaggregating information (useful in assessing future cash flows) 5

7. Contents 6 Summary Discussion Topics Working Group Background

8. Working Group 7 Purpose To assist the AOSSG in preparing improvement proposals to the IASB regarding the staff draft on FSP Lead country Korea Co-lead country China Members Australia, Hong Kong, Japan, Macao, Malaysia, New Zealand

9. Chronology of Working Process in 2010 Jul. 1: staff draft posted Aug. 7: distribution of a questionnaire for FSP WG Sept. 9: circulation of lead country’s comments on the questionnaire for FSP WG → Australia, China, Hong Kong, Japan, Macao, and New Zealand commented Comment period given: until Sep. 15 Sep. 29: 2 nd AOSSG meeting 8

10. Contents 9 Working Group Summary Discussion Topics Summary

11. Topics to be discussed 10

12. What is the main issue? To appropriately classify operating and investing activities. 1. Operating & Investing Categories 11 Business Activities Operating Investing

13. The IASB Staff Draft’s Proposal An operating category is comprised of assets(liabilities) related to an entity’s day-to-day business. An investing category is comprised of assets(liabilities) which generate return with no significant synergy from combined assets. Changes from the DP to the Staff Draft The notion of “Core and non-core activities” was the key principle to classify the business section in the DP, however it is eliminated. The boards proposed the independent definition for each category. 1. Operating & Investing Categories continued 12

14. WG’s Comments The definitions of the categories are rule-based. The underlying use may not be reflected in classifications. Most financing activities exist inseparably with operating activities. Lead Country’s Suggestion To be principle-based, the notion of “Core and non-core” should be reflected in their definitions. It is recommended that the concept of the business section be eliminated, resulting in three sections: Operating section, Investing section, Finance section. 13 1. Operating & Investing Categories continued

15. 14 2. Operating Finance Subcategory What is the main issue? To classify some activities with both operating and financing characteristics in their proper place. FinancingOperating

16. The IASB Staff Draft’s Proposal Any activity directly related to an operating activity is classified as an operating finance subcategory. Changes from the DP to the Staff Draft The operating finance subcategory was not stated in the DP. However, many argued some parts of the operating category were attributable to the finance section. The boards added the subcategory to the staff draft. 15 2. Operating Finance Subcategory continued

17. WG’s Comments It is difficult to conclude that the benefit is greater than the cost since it is arbitrary and burdensome. The proposal is not consistent in itself since it does not consider the concept of an investing finance subcategory. The operating finance subcategory is better to be included in a debt category. Lead Country’s Suggestion It is appropriate to divide until reaching the operating category level; the operating finance subcategory is unnecessary. 2. Operating Finance Subcategory continued 16

18. 3. Direct & Indirect CF Statement 17 What is the main issue? To identify applicable and accommodating method to both users and preparers of financial information. Revenue Cost Profit Cash Inflow Cash Outflow Operating CF

19. The IASB Staff Draft’s Proposal Operating CF shall be prepared in a direct method Changes from the DP to the Staff Draft The proposal of the DP created considerable controversy between an indirect and a direct method. Nevertheless, the boards retained the proposal to present all CF directly, including operating CF. 3. Direct & Indirect CF Statement continued 18

20. WG’s Comments The current accounting system is mostly based on an accrual basis. The users are accustomed to the indirect CF statement. The cost to maintain the required cash receipts and payments will be tremendous. In Japan’s case most preparers prefer the indirect method. Lead Country’s Suggestion The boards should still consider whether the direct method would improve the CF statement’s usefulness compared to the cost. 3. Direct & Indirect CF Statement continued 19

21. 4. Reconciliation of Income to CF 20 What is the main issue? To identify the type of income to focus on and its appropriate place to be put. Operating Income Net Income SCI or Notes

22. The IASB Staff Draft’s Proposal A reconciliation is required to be presented as part of the statement of CF. An entity shall present a reconciliation of operating income to operating CF. Changes from the DP to the Staff Draft It should be an integral part of the SCF Operating income is adjusted to operating CF, but not with each account. 4. Reconciliation of Income to CF continued 21

23. WG’s Comments It might distract users’ attention if the reconciliation is an integral part of the SCF. Net income is vested to shareholders, not operating income. Lead Country’s Suggestion The reconciliation should be disclosed as a note. It is more appropriate to reconcile from net income to operating CF. 4. Reconciliation of Income to CF continued 22

24. 5. Multi-category Transaction 23 What is the main issue? To articulate a suitable accounting policy for basket transaction.

25. The IASB Staff Draft’s Proposal The net effects on SCI and SCF shall be classified in the multi-category transaction section. Changes from the DP to the Staff Draft The boards did not reach a preliminary view in the DP, and requested comments from the respondents. The multi-category transaction section is introduced. 5. Multi-category Transaction continued 24

26. WG’s Comments The proposal is not consistent with the cohesiveness principle. Other standards, such as IAS 16 and IFRS 3, require allocation for basket transactions. Classification in an independent section is more pragmatic and cost-effective than allocations. Lead Country’s Suggestion The multi-category transaction should be allocated. 5. Multi-category Transaction continued 25

27. 6. Cash & Cash Equivalents 26 What is the main issue? To articulate appropriate guidelines for cash and cash equivalents. or

28. The IASB Staff Draft’s Proposal Cash equivalents shall be classified as short-term investments regardless of their liquidity or maturity. Changes from the DP to the Staff Draft There was not a congruent opinion upon the DP. However, the statement of the staff draft is identical to the DP without more persuasive explanation. 6. Cash & Cash Equivalents continued 27

29. WG’s Comments Cash equivalents function mostly the same as cash. Current requirements should remain until a sufficient principle is identified Cash equivalents have different economic characteristics than cash. Lead Country’s Suggestion Entities should not be prevented from classifying cash equivalents in the operating category. 6. Cash & Cash Equivalents continued 28

30. Contents 29 Working Group Discussion Topics Summary Background

31. Summary 30 TopicKey words 1. Operating & Investing Categories “Core and non-core” principle & Three section, no category 2. Operating Finance SubcategoryUnnecessary 3. Direct & Indirect CF StatementIndirect method 4. Reconciliation of income to CFNote disclosure & Net income 5. Multi-category TransactionAllocation 6. Cash & Cash EquivalentsOperating category

32. Thank you !! 31