A proposal from accounting standards bodies to overhaul financial statements contains several good points, but needs refinement, Fitch Ratings says.

Last year, the Financial Accounting Standards Board and the International Accounting Standards Board published a joint discussion paper that contemplates significantly changing the current presentation of the balance sheet, income statement and the cash flow statement. Final standards are not expected to be published until 2011.

In a report, Fitch Ratings says that the discussion paper was created in response to criticism from investors and analysts that current financial statements are too summarized and inconsistently presented.

It notes that the overall objectives set forth in the paper – financial statement cohesiveness, ‘disaggregation’ of line items, and more clarity on liquidity/financial flexibility – should improve the usefulness of financial statements to users and enhance analysis. However, Fitch says that it believes that further clarity and/or revision is needed on some of the more specific points offered in the proposal to determine usefulness.

For example, it says, that cohesiveness should serve to address some of the inconsistencies present in reconciling key items and making flows from period to period more understandable, but it notes that applying this principle too rigidly in practice by hard-wiring cohesive application line-by-line through all financial statements would result in cumbersome, unhelpful reporting.

“The discussion paper is a good start although it is unclear whether the benefits of the changes, if enacted in the current form, would outweigh the added costs for users as well as preparers,” said Olu Sonola, director, Fitch Ratings.

IE