The Statement of Changes in Financial Position: Retain, Repeal, or Modify?

Abstract

Prior to 1971, the statement of changes in financial position was not a required part of the annual report. In contrast, income and position statements have been required for many decades. This means that the statement of changes is a relatively new challenge for anyone learning, preparing, or interpreting financial statements. Rather than meeting this challenge directly, critics have argued that the present statement of changes should be repealed and that a severely modified statement or a new group of statements should replace it. These critics argue that the present statement lacks a standard definition of funds for all companies. It is confusing in its format and in its disclosure requirements. It is unable to meet all of its stated objectives. Similar criticisms, when leveled at income and position statements, are regularly rebutted. Moreover, it is too soon to tell whether repeal or major modification of the statement of changes is called for. Evidence suggests the statement of changes suffers from a lack of conceptualization.