5.2 Presentation of Financial Statements

5.2.1 Statement of Profit or Loss Presentation

Examples of SEC Comments

In your statements of comprehensive (loss) income, you present the loss for the period from operations subtotal. Please tell us how you considered the guidance in IAS 1.BC56 in determining that the accretion expense on your decommissioning and restoration liability would not be regarded as operating in nature and, thus, could be excluded from the loss for the period from operations subtotal.
We note you include other income and other net losses and share of loss of a joint venture in your determination of loss from operations. Please help us better understand how you determined it was appropriate to include net exchange losses, impairment loss on interest in joint venture, sundry income, bank interest income, and share of loss of a joint venture in your determination of loss from operations. Please refer to IAS 1.BC56 and Rule 5-03(b) of Regulation S-X.
We note your disclosure of [£X million] of other operating expenses for [the fiscal year]. In light of its significance, please tell us and disclose the component amounts making up this subtotal. Refer to paragraphs 85 and 97 of IAS 1.
Please present your expenses using a classification based on either their nature or their function, but not both. Refer to paragraphs 99-105 of IAS 1.
It appears that you have presented your expenses by function, except for Depreciation and amortization expense, which appears to be presented by the nature of the expense. Please support [your] presentation under IAS 1 or present all of your expenses by function and present a measure of Direct operating costs that is complete. Please refer to paragraphs 15, 29, 99 and 103 of IAS 1. We also note your presentation of the components of Direct operating costs in [the footnote] that presents amounts that are both by function and by nature. Please revise your footnote disclosure to present the components of Direct operating costs by nature.
You state that your intention is to present your R&D and Technology expenses on a functional basis. We continue to believe that the activities reflected in this line item relate to two separate functions (costs related to existing revenue streams versus costs related to research and development of future revenue streams). Accordingly, we believe IAS 1 would require separate line item presentations for each of these functions. . . . To the extent you continue to believe these functions are appropriately presented in a single line item, please provide us with a quantified breakdown of the components of this line item.

The SEC staff’s comments have often focused on the exclusion of certain expenses from, or the inclusion of certain gains in, amounts presented as results of operating activities (i.e., operating income). In addition, the staff has asked FPIs to present additional line items in the statement of profit or loss and OCI or provide more details of certain line items in the footnotes when such presentation is relevant to an understanding of the issuer’s financial performance.

Paragraphs 82 and 82A of IAS 1 each list line items that an entity should include, at a minimum, in its statement of profit or loss and OCI. Disclosure of the results of operating activities as a separate line item in the statement of profit or loss and OCI is not required; however, an entity that decides to present the results of operating activities or a similar line item should refer to paragraph BC56 of IAS 1, which notes that “it would be misleading and would impair the comparability of financial statements if items of an operating nature were excluded from the results of operating activities, even if that had been industry practice.”

In addition, paragraph 85 of IAS 1 requires an entity to present additional line items, headings, and subtotals on the face of the statement of comprehensive income “when such presentation is relevant to an understanding of the entity’s financial performance.” Further, paragraph 97 of IAS 1 requires that “[w]hen items of income or expense are material, an entity shall disclose their nature and amount separately” (emphasis added). When including such line items and subtotals, an entity should consider providing transparent disclosures that clearly convey the relevance of the items to financial statement users. In such cases, an entity may amend the description of the line items and reorder them to explain the particular element of financial performance.

The SEC staff has focused on the consistent presentation of the statement of profit or loss and footnotes either by nature or by function, and it has raised objections to a mixed presentation of certain line items by nature and other line items by function. Paragraphs 99 of IAS 1 requires an entity to present an analysis of expenses recognized in the statement of profit or loss by using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant. Further, paragraph 104 of IAS 1 requires an entity classifying expenses by function to disclose additional information about the nature of expenses, including depreciation and amortization expense and employee benefits expense. Paragraph 105 of IAS 1 states, in part:

The choice between the function of expense method and the nature of expense method depends on historical and industry factors and the nature of the entity. Both methods provide an indication of those costs that might vary, directly or indirectly, with the level of sales or production of the entity. Because each method of presentation has merit for different types of entities, [IAS 1] requires management to select the presentation that is reliable and more relevant. However, because information on the nature of expenses is useful in predicting future cash flows, additional disclosure is required when the function of expense classification is used.

5.2.2 Segment Reporting

Examples of SEC Comments

We note your disclosure in [a note] includes several segment measures of profitability such as gross profit, income from operations, net income and EBITDA. Please tell us and revise to disclose the measure that is reported to the CODM for the purposes of making decisions about allocating resources to the segment and assessing its performance. Please note under paragraph 26 of IFRS 8, if the CODM uses more than one measure of an operating segment’s profit or loss, the reported measure shall be that which management believes is determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in the entity’s financial statements.
We note that your table in Note [X] presents several segment measures of profit or loss, including EBITDA, Gross Profit, Operating Income (loss) and Net income (loss). However, we note from your disclosure in Note [Y] that segment performance is evaluated based on revenue, gross profit, EBITDA and net profit (loss) and the primary measure used by the CODM for evaluating segment performance is EBITDA. As IFRS 8 requires presentation of a single measure of segment profitability for each reportable segment, please revise your segment footnote to be consistent with the guidance in paragraph 26 of IFRS 8. In this regard, please note that if the chief operating decision maker uses more than one measure of an operating segment’s profit or loss, the segment’s assets or the segment’s liabilities, the reported measures shall be those that management believes are determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in the entity’s financial statements. Please revise accordingly.

The SEC staff has continued to focus on the presentation of more than one measure of segment profit or loss for each reportable segment. In instances in which the CODM receives multiple measures of profit or loss, IFRS 8 requires the measure presented for each reportable segment to be the one that most closely reflects the measurement principle applied to the consolidated financial statement. When an additional segment measure is presented and it is not computed in accordance with IFRS Accounting Standards, the SEC staff considers it to be a non-GAAP measure that is not permitted to be presented in the financial statements. Such additional measures of segment profit or loss may be disclosed outside the financial statements (e.g., within MD&A) provided that they comply with non-GAAP rules and regulations (see Section 2.20.5 for a discussion of comments on segment reporting received by domestic filers).

In November 2023, the FASB issued ASU 2023-07, which is aimed at enhancing a public entity’s current segment disclosures and requires additional disclosures of significant segment expenses. The ASU applies to all public entities that are required to report segment information in accordance with ASC 280, including FPIs that report under U.S. GAAP. For additional considerations, see Section 2.20.