One important topic of yesterday’s very interesting roundtable with Nick Cappiello is the staff draft proposal to include an “operating-finance” section in the balance sheet. The staff apparently views some transactions to have characteristics of both operations and financing of those operations. Ideally, I guess most users would like a clear distinction between operating items and items related to the financing of the company’s operations. Perhaps we have something to offer in conceptualizing the distinction.

I’ll start the ball rolling with an exercise: Is the net pension liability/asset a financing or operating item? Is the lease liability a financing or operating item? Both appear in the operating-finance category according to the current staff draft.

I’ll go out on a limb and suggest that the pension obligation belongs in operations because it arises out of the accrual accountinig decision to match labor expense with the periods in which the labor occurs; and the lease liability belongs in the financing section because it’s an obligation that does not arise out of an accrual accounting decision to match the cost of the underlying asset to periods benefited. What do others think?

Can you think of any items that clearly belong in an operating-finance category, or do you have a concept in mind that clearly separates operating from financing activities?

If there are other lingering questions from yesterday’s thought provoking presentation, please don’t hold back. Thanks!