From Boston to Beijing, the accounting profession may soon have a new type of financial statement - one without net profit at the bottom line, with finance information separated from operations, tax information off to the side and cash flow reported separately.

That's the direction that the Financial Accounting Standards Board and the International Accounting Standards Board have taken in a joint effort to produce a standard financial statement that would be more relevant to global investors.

FASB project manager Susan Bielstein said that her board is trying to improve financial statement presentation.

"We want investors to have access to meaningful information they can use, and not be so reliant on summary metrics," she said. "It doesn't mean that summary metrics aren't important, but hopefully we will give them a framework for delving beyond those summary metrics and understanding better how a business makes money."

The board is focusing on the display aspect of statements, but additional or different disclosures may be required, such as information about the sources of any changes in accruals, estimates or fair value on the balance sheet.

One section of a statement would cover the business operations, or value-creation, of a business. The balance sheet would display the assets and liabilities used in the main operating business and the net profit or loss generated by those activities. The cash-flow statement would reflect flows produced by business activities.

A separate section would cover finance, its assets and liabilities, income and expenses associated with those financing activities, and associated cash flows. There would also be a separate section for income taxes.

"It sounds radical, but in a way, it makes tremendous sense," Bielstein said. "This is what people want to know - what are operating earnings, how do we finance those operations, how much does the tax man take and what's left over."

The CFA Institute, which advocates for investors, strongly supports the project. Rebecca McEnally, director of capital markets policy, said that the current model is antiquated and long overdue for an overhaul.

McEnally said that current over-aggregation hides important information, items measured on different bases are mixed together, and a lack of cohesiveness across the financial statement makes it impossible to track a single line item from one balance sheet to another.

"Once statement users carefully study the changes, they will see the benefits," McEnally said.


Bielstein said that groups representing the users of financial statements have given FASB "a lot of enthusiastic support" about the potential changes that are being discussed.

"A lot of users and investors are telling us that existing financial statement presentation information needs to be updated and simplified to make it easier for them to analyze the information and make it useful for their analyses," Bielstein said. "It's time for a change. The board has never comprehensively considered the issue of [presentation]. Standards have been developed piecemeal over the years. It's time for us to find a better way to present the information."

Bielstein said that the adoption of more fair-value and mixed-measurement bases of accounting is one reason that financial display should be changed. The board hopes to make it easier for users to understand the extent to which fair value has been used to derive information.

"The project does not change the way anything is measured or what is recognized in financial statements today," Bielstein said. "All it does is provide standards for how items that today are measured and recognized are displayed."

A primary principle underlying the boards' discussions is the notion that information about business activities should be displayed separately from information about the financing of those activities.

The segregation of operations and financing information may result in the standard not applying to financial institutions. FASB has formed a Financial Institution Advisory Group to consider that question.

Both boards intend to issue preliminary views on the project later this year.

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