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FRC endorses new IFRS requirement on debt disclosure

NEW IASB rules requiring companies to disclose changes in liabilities in the financing section of cash flow statements from 2017 have been welcomed by the FRC.

The improvements to disclosures included in amendments to IAS 7 compel companies to provide information about changes in their financing liabilities and come as a response to requests from investors for information that helps them better understand changes in a company’s debt.

The amendments are designed to help investors evaluate changes in liabilities arising from financing activities, including changes from cash flows and non-cash changes, such as foreign exchange gains or losses.

Sue Harding, director of the FRC’s financial reporting lab, said: “This fnancial reporting lab’s work on net debt reconciliations demonstrated that investors need more information on significant cash and non-cash changes in debt.

“The new requirements will provide welcome transparency on this. We encourage the IASB to continue its consideration of enhanced disclosure of the accessibility of cash and cash equivalent balances.”

Further amendments may be issued in the future, with some stakeholders suggesting it is an incremental improvement rather than a fully-formed solution.

In a blog, PwC director of investor engagement Hilary Eastman wrote: “Some have criticised the amendments because they think they don’t go far enough. For example, IASB member Tak Ochi dissented to the amendments because he doesn’t think they will give enough information about an entity’s risk management. He thinks the fact that companies that apply the amendments in combination with disclosure of changes in cash, without also providing information about the location and availability of that cash, could mislead users and not give a full picture of the company’s liquidity risk.”

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