The Role of the Business Model in Financial Statements
In December 2013, the FRC published a Research Paper, ‘The Role of the Business Model in Financial Statements, which was the result of joint project between the FRC, The European Financial Reporting Advisory Group (EFRAG) and the Autorité des Normes Comptables (ANC).
The term ‘business model’ appeared in the IFRS literature for the first time when IFRS 9 Financial instruments was issued in 2009. The Research Paper considered the use of the term and shows that the notion has been an implicit part of IAS/IFRS for a long time. The business model provides insight into how value is captured and net cash flows generated through income in the normal course of a business and it is not clear why the notion is not been more broadly used in IFRS.
The Research Paper argued that the business model should play a role in financial reporting and be part of the revised Conceptual Framework. Therefore, all standards must be capable of representing faithfully the business model, and, where applicable, the business model should explicitly be incorporated on a standard-by-standard basis. Its consequences for recognition, measurement, and presentation and disclosures should be assessed, and decisions should be taken whether and how the business model should affect financial reporting.
The Research Paper can be downloaded here (PDF).
In September 2014, the FRC published a Feedback Statement that can be downloaded here (PDF).