1. AOSSG WG Financial Statement Presentation 5 November 2009 IL-Hong, Park Senior Researcher The Korea Accounting Standards Board

2. Contents 1 Background Working Group Discussion Issues Summary

3. Contents 2 Working Group Summary Background Discussion Issues

4. Joint Project of the IASB/FASB Steps for the Financial Statement Presentation(FSP) Project Discussion Paper(DP) published: in October 2008 Field test performed: during the fourth quarter of 2008 Comment period given: until April 2009 ED expected to be issued: in the second quarter of 2010 Final standards expected to be issued: in the mid-2011 3

5. The IASB DP Preliminary Views on FSP Are well-organised, thanks to many years of effort by the IASB/FASB Include almost all important issues related to FSP Three Objectives of the DP Portray a cohesive financial picture Disaggregate information (useful in assessing future cash flows) Present information about liquidity and financial flexibility 4

6. Contents 5 Summary Discussion Issues Working Group Background

7. Purpose & Composition of Working Group (WG) on FSP Purpose To assist the AOSSG in preparing improvement proposals to the IASB regarding the DP Preliminary views on FSP Members Australia, Hong Kong, Japan, Macao, Malaysia, New Zealand Co-lead Country China Lead Country Korea 6

8. Chronology of Working Process September 2, 2009: initial discussion report issued October 7, 2009: WG FSP members’ comments on the initial discussion report October 19, 2009: revised discussion report issued October 22, 2009: all AOSSG members’ comments on the revised discussion report November 5, 2009: 1st AOSSG meeting 7

9. Contents 8 Working Group Summary Discussion Issues Summary

10. Key Issues to be discussed 1. Short-cut direct method for operating cash flows 2. Additional guidance for management judgement 3. Classification of dividends payable 4. Classification of a net post-employment benefit asset or liability 5. Additional guidance for the definition of the operating category 6. Disclosure standard 9

11. The IASB DP’s Proposal Operating cash flows are prepared only by a direct method WG’s Initial Proposal: Short-cut Direct Method for Operating Cash Flows Reducing preparation costs and effort Cash flows by an indirect method can be converted to the cash flows by a direct method Reconciling profit or loss adjustment items of an indirect method to the relevant items of the operating category in the statement of comprehensive income 1. Short-cut Direct Method for Operating Cash Flows 10

12. WG’s Opinions to the Initial Proposal Almost all disagreed: inaccurate, inconsistent with disaggregation objective Some agreed: reduces preparation costs and effort Some noted: use as application guidance, not as standard WG’s Opinions to the DP Many doubted: the direct method provides more useful information than indirect method Many concerned: the cost of preparing the information using the direct method is high 1. Short-cut Direct Method for Operating Cash Flows 11

13. WG’s Suggestion Use short-cut direct method as a reasonable alternative for the direct method for operating cash flows 1. Short-cut Direct Method for Operating Cash Flows 12

14. The IASB DP’s Proposal Adopt a management approach to classification rather than a prescriptive approach WG’s Initial Proposal: Additional Guidance for Management Judgement Concerned with loss of information due to oversimplification Additional guidance (materiality judgement or numerical limitation) 2. Additional Guidance for Management Judgement 13

15. WG’s Opinions to the Initial Proposal Almost all disagreed: materiality is subject to management judgement and numerical limitation is overly rule-based Some noted: the level of disaggregation in applying the direct method as proposed by the DP is too onerous WG’s Suggestion The IASB is expected to develop application guidance for groupings of information by management (IASB Update, Sept. 09’) Address the issue of oversimplification or excessive disaggregation in the financial statements when the IASB develops application guidance 14 2. Additional Guidance for Management Judgement

16. The IASB DP’s Proposal Present them as liabilities under the financing section, which is an exception for cohesiveness objective(*) (*) It is uncertain whether the IASB acknowledges it as an exception to the cohesiveness objective. This material is prepared under the assumption that the IASB acknowledges it as an exception. WG’s Initial Proposal: Present them in Equity Section Consistent with cohesiveness objective Separate owner source of financing from non-owner source The DP seems to follow proprietary view by segregating the equity section from the financing 3. Classification of Dividends Payable 15

17. WG’s Opinions to the Initial Proposal Some disagreed: financial liabilities in substance Some agreed: consistent with cohesiveness objective Some noted: classification is fundamentally related to ‘entity view’ vs. ‘proprietary view’ WG’s Suggestion The IASB’s tentative decision(IASB Update, Sept. 09’) “Define the financing section as financial liabilities used as part of an entity’s capital raising activities that have an agreed-upon schedule of repayments with an interest component” 16 3. Classification of Dividends Payable

18. WG’s Suggestion(cont.) Not financial liabilities under the IASB’s tentative decision Classification depends on which perspective is taken, either - definition of liabilities in the Framework or - presenting owner-source of financing separately from non- owner source Until fundamental issue is addressed, the following should be maintained - the exception should be removed - they are presented under the equity section 3. Classification of Dividends Payable 17

19. The IASB DP’s Proposal Present it in a single category WG’s Initial Proposal: Operating Category Not related to the substance of financing activities Treat it in a manner similar to that of the prepaid or unpaid employee compensations that arise from business operations, which are classified in the operating category 4. Classification of Net Post-employment Benefit Asset or Liability 18

20. WG’s Opinions to the Initial Proposal Some agreed: generally classified in the operating category Some disagreed: inappropriate to restrict the classification and is just a matter of professional judgement WG’s Suggestion The IASB is expected to develop application guidance for the business section (The IASB Update, Sept. 09’) This issue needs to be considered for developing application guidance for the business section 19 4. Classification of Net Post-employment Benefit Asset or Liability

21. The IASB DP’s Proposal The operating category includes assets and liabilities that management views as related to the central purposes for which the entity is in business WG’s Initial Proposal: The operating category includes assets and liabilities related to the central purpose of ‘current business’ Value creating activities as proposed by the DP are too uncertain Investing activities might be classified to the operating category, which could distort operating performance 5. Additional Guidance for Definition of Operating Category 20

22. WG’s Initial Proposal: The operating category includes assets and liabilities related to the central purpose of ‘current business’(cont.) By excluding items related to the future business from the operating category, the financial statements provide decision- useful information for sustainable operational performance and cash flows from continuing operations WG’s Opinions to the Initial Proposal Some disagreed: too restrictive and inconsistent with the management approach to classification Some agreed: improve comparability between entities’ financial statements 5. Additional Guidance for Definition of Operating Category 21

23. WG’s Suggestion The IASB is expected to develop application guidance for the business section (IASB Update, Sept. 09’), Therefore, decide to drop the initial proposal Instead, suggest that the central purpose of ‘current business’ be considered as one of the examples in the application guidance on the operating category within the business section 5. Additional Guidance for Definition of Operating Category 22

24. Conceptual Framework for Disclosure Many pointed out the defects of financial statements due to the absence of disclosure framework Phase E(Presentation and Disclosure) of the Conceptual Framework has not yet begun and its timing is uncertain It would be ideal all disclosure requirements in standards reflect the disclosure principles by developing the Conceptual Framework. Some conceptual issues are addressed as part of an individual standard project and the Conceptual Framework project simultaneously ex) ‘Financial Instruments with Characteristics of Equity’: the concept of liability and equity 6. Disclosure Standard 23

25. WG’s Suggestion Include a disclosure as significant part of the FSP projects IAS 1 Presentation of Financial Statements is best relevant standard that addresses disclosure 6. Disclosure Standard 24

26. Contents 25 Working Group Discussion Issues Summary Background

27. Summary 26 WG’s suggestion Short-cut direct method for operating cash flows ☞ use as a reasonable alternative for direct method Additional guidance for management judgement Classification of a net post-employment benefit asset or liability Additional guidance for the definition of the operating category ☞ reflect these issues in developing application guidance Classification of dividends payable ☞ until fundamental issue is addressed, present them in the equity section Disclosure standard ☞ include a disclosure in the FSP project

28. Thank you !! 27