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The FASB is working on an exposure draft that would significantly revamp the way financial statements are presented. Financial statements would be comprised of a statement of financial position, statement of comprehensive income, statement of cash flows and notes to the financial statements.

Each of statements will have Financial Statement Sections broken down further into Categories. Financial Statement Sections would be split between Business activities, Financing Activities, Taxes and Discontinued Operations. The Business Section will comprise a company’s assets and liabilities related to the daily business operations (operating category) and those that generate a return (investing category). The Financing Section will be comprised of borrowings (debt category) and capital raises (equity category). For example, the current statement of financial position groups assets together and groups liabilities together. The new format would present assets and liabilities together within a Section and a Category based upon how the entity will use them and how it views its activities. The notes to the financial statements would disclose the rationale used to classify assets and liabilities into Sections and Categories.

The goal of the future changes is to disaggregate information so it is useful in assessing the amount, timing, and uncertainty of a company’s future cash flow and portray a cohesive financial picture of the company’s activities in such a way that the relationship between items across financial statements is clear and complementary. While these potential changes still need to go through a comment period, they may become final accounting standards as early as 4th quarter 2011.

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