IASB Proposals Include Investment Property Entity Income Statement Illustrative Example and a Requirement to Disclose Non-GAAP Measures in the Notes to the Financial Statements

On Dec. 17, the International Accounting Standards Board (IASB) issued three exposure drafts (collectively, the Proposals) that would change how information is communicated in the financial statements, with a focus on the statement of profit or loss (i.e., the income statement). The Proposals would require certain subtotals in the statement of profit or loss and a standardized approach to the reporting of management-defined performance measures (i.e., non-GAAP measures). The Proposals include illustrative examples of the statement of financial performance for different types of companies, one of which is an investment property entity.

Nareit members that prepare financial statements in accordance with International Financial Reporting Standards (IFRS) would be impacted by the exposure drafts, if finalized. Additionally, the feedback received by the IASB will be considered by the Financial Accounting Standards Board (FASB) as the FASB develops its future standard setting agenda. The three exposure drafts can be found on the IASB’s Primary Financial Statements page. If you are interested in participating in a Nareit task force that will evaluate the exposure drafts and consider whether Nareit should develop a comment letter and/or what Nareit input should be provided to the Real Estate Equity Securitization Alliance (REESA) for its comment letter, please complete this form by Jan. 15. Comment letters are due to the IASB by June 30.

New Subtotals in the Statement of Profit or Loss

Companies would be required to provide three new profit subtotals, including operating profit. Operating profit is commonly reported by companies, but is currently not defined by IFRS, making meaningful comparisons between companies difficult. The new subtotals would give standard structure to the information, which are intended to enable investors to compare companies more easily.

Non-GAAP Transparency

Companies would be required to disclose management performance measures in a single note to the financial statements. In the note, companies would be required to explain why the measures provide useful information, how they are calculated and to provide a reconciliation to the most comparable profit subtotal specified by IFRS. These requirements are intended to add transparency and discipline to the use of non-GAAP measures and make it easier for investors to find the information they need to make their own analyses. By incorporating the management performance measures in the notes to the financial statements, the measures would be subject to annual audit procedures.

Improved Disaggregation of Information

The IASB heard investor concerns regarding the difficulty in analyzing and dissecting a company’s reported information because items may be combined with insufficient labeling or explanation. Therefore, the IASB has proposed new guidance to help companies disaggregate information for investors. Companies would also be required to provide additional analysis of their operating expenses and to identify and explain in the notes any “unusual” income or expenses. The IASB proposes to define unusual income and expenses as: “income and expenses with limited predictive value. Income and expenses have limited predictive value when it is reasonable to expect that income or expenses that are similar in type and amount will not arise for several future annual reporting periods.” The new disaggregation requirements are intended to help investors analyze companies’ earnings and forecast future cash flows.


Christopher Drula (cdrula@nareit.com) or George Yungmann (gyungmann@nareit.com).