The IASB’s Quick Fix for the Distortion Created by IFRS 18 in the Presentation of Operating Profit in Entities Whose Primary Business Activity is Investment in Assets
A fast-track amendment to IAS 28 will allow the designation of investments in associates and joint ventures at fair value through profit or loss. The amendment comes in response to a distortion that exists under IFRS 18, whereby results arising from measuring investments in associates and joint ventures using the equity method — including those whose activity is synergistic and closely related to that of the holding company — would be classified in the statement of comprehensive income under the investment category rather than the operating category. The amendment, which was aimed at insurance companies, is a very significant positive development for income-producing real estate companies and additional companies, and we hope that it will be further extended to additional sectors going forward.
Advancing Toward an Economic Principle for Cash Flow Reporting: How to Prevent Distortions and Manipulations in the Statement of Cash Flows
The statement of cash flows currently contains numerous distortions resulting from a view that the presentation of cash flows is merely a technical exercise, rather than applying an economic principle. This leads to the ability to easily structure the same transactions in a different legal form and arrive at a completely different reporting result in the statement of cash flows. This can have problematic implications for each of the three categories of the statement, including potential inflation of operating cash flows. In our view, an economic principle of presenting cash flows should be applied that ignores cash flow "shortcuts", thereby providing more relevant information to investors. According to this principle, cash flows would be presented on a gross basis when the underlying transaction is a cash payment (or receipt) at the instruction, or on behalf, of the reporting entity to (or from) third parties, such as financial institutions with which
Classification Inconsistency in Equity Method Results under IFRS 18: Further Evidence—The Case of Separate Financial Statements
An IFRS Interpretations Committee staff paper provides further evidence of potential inconsistency arising from the requirement under IFRS 18 to always classify in the investing category the share of profit or loss of investments accounted for using the equity method. This unequivocal requirement in IFRS 18 has left the staff with no choice but to […]
How Should a Statement of Cash Flows be Presented Following IFRS 18
It is appropriate to undertake a fresh reconsideration of the relevance of the current structure of the statement of cash flows to meet investors' needs that have evolved over the years. These needs are further highlighted considering the change in the structure of the statement of profit or loss in accordance with IFRS 18. The model we propose creates full coherence between the statement of cash flows and the new statement of profit or loss. The core of the proposed reform focuses on the operating category, which will be prepared using the direct method and will include two sections: the first represents the cash flows from operating activities as it is today (excluding taxes). The second section includes cash flows for investments in operating assets, that is, payments for the purchase/investment in assets used in operating activities, as well as receipts from their disposal. Additionally, we recommend requiring a disclosure
The Crypto Industry: Current Accounting Standards Lead to Inflated Statement of Profit or loss
Companies engaged in crypto asset trading that are publicly traded in the United States currently report their revenue from trading in crypto assets on a gross basis, under both IFRS and US GAAP. This reporting stems from the accounting principle of control over assets, which has been adopted in both Frameworks as the basis for distinguishing between gross reporting (principal) and net reporting (agent). Crypto industry companies argue that this form of reporting leads to inflated revenue and cost of sales, resulting in minimal gross profit margins that completely contradict their business model, which generates profit from fees and spreads. To prevent loss of relevance to the point of misleading investors, we believe that global standard-setting bodies should amend the rules on this matter, similar to the intervention implemented approximately a year and a half ago in the United States (and, we believe, should be implemented in IFRS as well)
