A front-page article in a recent Wall Street Journal (May 12, 2007) reporting the possible demise of the familiar financial statement—at least the form that’s endured since the Industrial Revolution—may have been a bit premature.

The potential “overhaul” referred to in the article, which could produce “drastic” and “radical” changes to the way companies report financial performance (and investors judge financial opportunities)—including the elimination of “net income” as the “bottom line” indicator—is none other than the joint project by the FASB’s and IASB, Financial Statement Presentation, which has been in the works for over five years.

Although the Boards plan to unveil a Preliminary View by the year's end, that hardly amounts to a sudden “shock” that WSJ reporter David Reilly claims will “force every accounting textbook to be rewritten and anyone who uses accounting—from clerks to chief executives—to relearn how to compile and analyze information that shows what is happening in a business.” 

More likely, the project will continue to develop as the Boards gather feedback from the financial community and advisors such as the Joint International Group (JIG), formed in 2005, which advocates moderation.  “We must design the best reporting model for shareholders given the accounting model we have in place,” said member Ken Kelly (McCormick & Co.), in a JIG presentation on net income.  Fellow member Bo Eriksson (Stora Enso Oyj) agreed:

The future direction for performance reporting needs to be a mixed model that makes it possible to meet the requirements of…income as a measure of performance and as a measure of value creation.

To see what a future financial statement might look like, the WSJ has posted a hand-out from a FASB “advisory group” meeting last March (and notes that any change will only take place after “extensive due process and deliberation”).  Click here.