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17 July 2006 IAS 1 Amendments International Accounting Standards Board 30 Cannon Street London EC4M 6XH

Exposure Draft: Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation Dear Sir/Madam, We appreciate the opportunity to comment on the International Accounting Standards Boards (IASB or Board) Proposed Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation (hereafter referred to as the Exposure Draft). We support the Exposure Draft as part of the Boards general objective to enhance the usefulness of information presented in the financial statements but consider this as a relatively small step forward. Fitch will be following the discussion in segment B of the FASB/IASB joint project, which we hope will result in appropriate granularity within the statements and will focus on reconciling the component parts between the various financial statements. Our particular focus will be on seeing improvement in the cash flow statement. Overview Fitch Ratings (Fitch) is a leading global rating agency committed to providing the world's credit markets with independent, timely and prospective credit opinions. Fitchs corporate ratings make use of both qualitative and quantitative analyses to assess the business and financial risks of fixed-income issuers. Therefore, Fitch directly relies on the financial statements and that reliance places us in an informed position to comment on information we believe is useful and crucial in the credit evaluation process, which is a critical component of efficient capital markets. We think it is important for accounting standards to consider the heavy reliance on cash flow related disclosures by credit analysts and fixed-income investors in determining a companys ability to service its debt as it falls due and continue as a going concern. While we understand that no amendment has been proposed to IAS 7 at this stage, and we agree that it would be impracticable to do so, with regard to BC27 of the Exposure 1

Draft we wish to emphasise that starting a cash flow statement at net income and reconciling for non-cash items is not helpful for cash flow-based analysis. In this sense, it would make little difference to us if the indirect cash flow statement were to start at total recognised income and expense rather than net income, but we would encourage the IASB to urge preparers at least to provide more meaningful and granular reconciliation to cash flow if they find it too difficult to provide information under the direct method. Each of your questions is addressed below: Questions 1 and 3 The labelling of the component parts of the statements is not a major issue for us. We consider the Boards proposal not to make changes in nomenclature mandatory a sensible one, and will be interested to see how companies make use of this flexibility over the next few years. Question 2 Yes. We agree. It is important that our analysts are able to understand how the numbers that appear in different statements relate to each other. Providing the closing balance sheet for the prior period should assist in this. Question 4 We agree that owner changes in equity should be presented separately from all other changes in equity. Understanding internally generated cash flows separately from those external to the business is an important part of a rating agencys analysis of a companys ability to generate sufficient cash flow to repay its debt. We encourage the Board to ensure that the segregation of owners from non-owners interests is maintained in the statement of cash flows as well. Question 5 We agree that the flexibility of permitting entities to present components of recognised income and expense either in a single or in two statements is appropriate at the current time. We acknowledge that some users would be confused if the net income line they are used to were to disappear from one period to the next. However, we do not consider it appropriate and view it as often misleading for users to focus on a single magic number in financial statements. Fitch encourages its analysts to adjust this number for inconsistency between periods or between companies by putting thought into the various items shown in the financial statements and the notes, and to look at the information provided about developments in a company that is shown in movements in equity that are not shown as part of net income. For this process it makes no difference whether income and expense are presented in one statement or two, except that presentation in two statements gives the impression that the bottom line number in the first statement has some meaning for users. We are struggling to identify what this may be given the current composition of net income. Question 6 We agree with the proposal to present reclassification adjustments separately. We wish to point out that clear display of these items in the cash flow statement at the same time would assist our understanding of how the financial statements relate to one another. 2

Question 7 We agree that it is important for users to be able to see the tax related to components of other recognised income and expense. These items are often adjusted for in our analysis, and it is preferable to do this with the appropriate rather than the estimated related tax. BC25 describes our position well in this context. Question 8 As a credit rating agency, looking at a companys ability to repay debt, Fitch does not look at the Earnings per Share, so we leave this question for equity investors to answer.

We will be happy to answer any questions on our comments and look forward to discussing these comments with the Board at the appropriate time.

Yours faithfully,

Bridget Gandy Managing Director Credit Policy Fitch Ratings London