IA3 1st Handout

Presentation of Financial Statements (PAS1)
Objective
The objective of PAS 1 is to prescribe the basis for presentation of general-purpose financial statements, to ensure
comparability both with the entity’s financial statements of previous periods and with the financial statements of
other entities. PAS 1 sets out the overall framework and responsibilities for the presentation of financial statements,
guidelines for their structure and minimum requirements for the content of the financial statements.
Standards for recognizing, measuring and disclosing specific transactions are addressed in other Standards and
Interpretation.
Scope
The objective of general-purpose financial statements id to provide information about the financial position, financial
performance, and cash flows of an entity that is useful to wide range of users in making economic decisions. To meet
that objective, financial statements provide information about an entity’s:
 Assets
 Liabilities
 Equity
 Income and Expenses, including gains and losses
 Other changes in Equity
 Cash flows
That information, along with other information in the notes, assists users of financial statements in predicting the
entity’s future cash flows and in particular, their timing and certainty.
Components of Financial Statements
A complete set of Financial Statements comprises:
a) A Statement of Financial Position as at the end of the period

b) A Statement of Comprehensive Income for the period
c) A Statement of Changes in Equity for the period
d) A Statement of Cash Flows for the period
e) Notes, comprising a summary of significant accounting policies and other explanatory information
f) A Statement of Financial Position as at the beginning of the earliest comparative period when an entity applies
an accounting policy retrospectively or makes retrospective restatements of items in its financial statements,
or when it reclassifies items in its financial statements.
Overall Considerations for Statements Presentations
Fair Presentation and Compliance with PFRSs
The financial statements must “present fairly” the financial position, financial performance and cash flows of an entity.
Fair presentation requires the faithful representation of the effects of transactions, over events, and conditions in
accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the
Framework. The application of PFRSs with additional disclosure, when necessary, is presumed to result in financial
statements that achieve a fair presentation.
PAS 1 requires that an entity whose financial statements comply with PFRS makes an explicit and unreserved
statement of such compliance in the notes. Financial statements shall not be described as complying with PFRS unless
they comply with all the requirements of PFRSs.
In appropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or
explanatory material.
PAS 1 acknowledges that, in extremely rare circumstances, management may conclude that compliance with an PFRS
requirement would be so misleading that it would conflict with the objective of financial statements set out in the
Framework. In such a case, the entity is required to depart from the PFRS requirement, with disclosures of the nature,
reason, and impact of the departure.
Going Concern
An entity preparing PFRS financial statements is presumed to be a going concern. If management has significant
concerns about the entity’s ability to continue as a going concern, the uncertainties must be disclosed. If management
concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern
basis, in which case PAS 1 requires a series of disclosure.
Accrual Basis
PAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual basis
of accounting.
Consistency of Presentation
The presentation and classification of items in the financial statements shall be retained from one period to the next
unless a change is justified either by a change in circumstances or a requirement of a new PFRS.
Materiality and Aggregation
Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be
aggregated only if they are individually immaterial.
Offsetting
Assets and liabilities, and income and expenses, may not be offset unless required or permitted by a Standard or an
interpretation.
Comparative Information
PAS 1 requires that comparative information shall be disclosed in respect of the previous period for all amounts
reported in the financial statements, both face of financial statements and notes, unless another Standard requires
otherwise. If comparative amounts are changed or reclassified, various disclosures are required.
Frequency of Reporting
There is a presumption that financial statements will be prepared at least annually. If the annual reporting period
changes and financial statements are prepared for a different period, the enterprise must disclose the reason for the
change and a warning about problems of comparability.
Statement of Financial Position
Current/Noncurrent Distinction
An entity must normally present a classified Statement of financial position, separating current and noncurrent assets
and liabilities. Only if a presentation on liquidity provides information that is reliable and more relevant may the
current/noncurrent split be omitted.
Current Assets
An entity shall classify an asset as current when:
a) It expects to realize the assets, or intends to sell or consume it, in its normal operating cycle
b) It holds the asset primarily for the purpose of trading
c) It expects to realize the asset within twelve months after the reporting period or
d) The assets are cash or a cash equivalent (as defined in PAS 7) unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months after the reporting period.
An entity shall classify all other assets as non-current.
Normal Operating Cycle – the time between the acquisition of assets for processing and their realization as cash or
cash equivalents. When the entity’s normal operating cycle is not clearly identifiable, its duration is assumed to be
twelve months.
Current Liabilities
An entity shall classify a liability as current when:
a) It expects to settle the liability in its normal operating cycle

b) It holds the liability primarily for the purpose of trading
c) The liability is due to be settled within 12 months after the reporting period
d) The entity does not have an unconditional right to defer settlement of the liability for at least 12 months after
the reporting period.
An entity shall classify all other liabilities as non-current.

Issues on Refinancing
An entity classifies its financial liabilities as current when they are due to be settled within 12 months after the balance
sheet date, even if:
a) The original term was for a period longer than 12 months

b) The intention is supported by an agreement to refinance, or reschedule the payments, on a long-term basis is
completed after the balance sheet date and completed before the financial statements are authorized for issue.
If the entity has the discretion and has the discretion to refinance, or to roll over the obligation for at least 12 months
after the balance sheet date under an existing loan facility, it classifies the obligation as non-current, even if it would
be due within a shorter period.
Breach of a Loan Covenant
If a liability has become payable on demand because an entity has breached an undertaking under a long-term loan
agreement on or before the balance sheet date, the liability is current, even if the lender has agreed, after the balance
sheet date and before the authorization of the financial statements for issue, not to demand payment as a
consequence of the breach. However, the liability is classified as non-current if the lender agreed by the balance sheet
date to provide a period of grace ending at least 12 months after the balance sheet date, within which the entity can
rectify the breach and during which the lender cannot demand immediate repayment.

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Presentation of Financial Statements (PAS1)

Components of Financial Statements

A complete set of Financial Statements comprises:

a) A Statement of Financial Position as at the end of the period

Overall Considerations for Statements Presentations

Fair Presentation and Compliance with PFRSs

Materiality and Aggregation

Statement of Financial Position

An entity shall classify an asset as current when:

An entity shall classify all other assets as non-current.

An entity shall classify a liability as current when:

a) It expects to settle the liability in its normal operating cycle

An entity shall classify all other liabilities as non-current.

a) The original term was for a period longer than 12 months

Breach of a Loan Covenant

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