IAS 1

IASB documents published to accompany

International Accounting Standard 1

Presentation of Financial Statements

This version includes amendments resulting from IFRSs issued up to 31 December 2009.

The text of the unaccompanied IAS 1 is contained in Part A of this edition. Its effective date
when issued was 1 January 2009. The effective date of the most recent amendment is
1 January 2013. This part presents the following accompanying documents:

page
APPROVAL BY THE BOARD OF IAS 1 ISSUED IN SEPTEMBER 2007 B646
APPROVAL BY THE BOARD OF PUTTABLE FINANCIAL INSTRUMENTS AND
OBLIGATIONS ARISING ON LIQUIDATION (AMENDMENTS TO IAS 32 AND IAS 1)
ISSUED IN FEBRUARY 2008 B647
BASIS FOR CONCLUSIONS B648
APPENDIX
Amendments to the Basis for Conclusions on other IFRSs B676
DISSENTING OPINIONS B677
IMPLEMENTATION GUIDANCE B679
APPENDIX
Amendments to guidance on other IFRSs B692
TABLE OF CONCORDANCE B693

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Approval by the Board of IAS 1 issued in September 2007

International Accounting Standard 1 Presentation of Financial Statements (as revised in 2007)
was approved for issue by ten of the fourteen members of the International Accounting
Standards Board. Professor Barth and Messrs Cope, Garnett and Leisenring dissented.
Their dissenting opinions are set out after the Basis for Conclusions.

Sir David Tweedie Chairman

Thomas E Jones Vice-Chairman
Mary E Barth
Hans-Georg Bruns
Anthony T Cope
Philippe Danjou
Jan Engström
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
John T Smith
Tatsumi Yamada

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Approval by the Board of Puttable Financial Instruments and

Obligations Arising on Liquidation (Amendments to IAS 32
and IAS 1) issued in February 2008
Puttable Financial Instruments and Obligations Arising on Liquidation (Amendments to IAS 32
Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements) was approved
for issue by eleven of the thirteen members of the International Accounting Standards
Board. Professor Barth and Mr Garnett dissented. Their dissenting opinions are set out
after the Basis for Conclusions on IAS 32.

Sir David Tweedie Chairman

Thomas E Jones Vice-Chairman
Mary E Barth
Stephen Cooper
Philippe Danjou
Jan Engström
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
John T Smith
Tatsumi Yamada
Wei-Guo Zhang

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CONTENTS
paragraphs

BASIS FOR CONCLUSIONS ON

IAS 1 PRESENTATION OF FINANCIAL STATEMENTS
INTRODUCTION BC1–BC10
The Improvements project—revision of IAS 1 (2003) BC2–BC4
Amendment to IAS 1—Capital Disclosures (2005) BC5–BC6
Amendments to IAS 32 and IAS 1—Puttable Financial Instruments and
Obligations Arising on Liquidation (2008) BC6A
Financial statement presentation—Joint project BC7–BC10
DEFINITIONS BC11–BC13
General purpose financial statements BC11–BC13
FINANCIAL STATEMENTS BC14–BC38
Complete set of financial statements BC14–BC22
Titles of financial statements BC14–BC21
Equal prominence BC22
Departures from IFRSs BC23–BC30
Comparative information BC31–BC36
A statement of financial position as at the beginning of the
earliest comparative period BC31–BC32
IAS 34 Interim Financial Reporting BC33
Criterion for exemption from requirements BC34–BC36
Reporting owner and non-owner changes in equity BC37–BC38
STATEMENT OF FINANCIAL POSITION BC38A–BC48
Current assets and current liabilities BC38A–BC38D
Classification of the liability component of a convertible instrument BC38E-BC38I
Effect of events after the reporting period on the classification of liabilities BC39–BC48
STATEMENT OF COMPREHENSIVE INCOME BC49–BC73
Reporting comprehensive income BC49–BC54
Results of operating activities BC55–BC56
Subtotal for profit or loss BC57–BC58
Minority interest BC59
Extraordinary items BC60–BC64
Other comprehensive income—related tax effects BC65–BC68
Reclassification adjustments BC69–BC73
STATEMENT OF CHANGES IN EQUITY BC74–BC75
Effects of retrospective application or retrospective restatement BC74
Presentation of dividends BC75
STATEMENT OF CASH FLOWS BC76
IAS 7 Cash Flow Statements BC76
NOTES BC77–BC104

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Disclosure of the judgements that management has made in the process

of applying the entity’s accounting policies BC77–BC78
Disclosure of major sources of estimation uncertainty BC79–BC84
Disclosures about capital BC85–BC89
Objectives, policies and processes for managing capital BC90–BC91
Externally imposed capital requirements BC92–BC97
Internal capital targets BC98–BC100
Puttable financial instruments and obligations arising on liquidation BC100A–BC100B
Presentation of measures per share BC101–BC104
TRANSITION AND EFFECTIVE DATE BC105
DIFFERENCES FROM SFAS 130 BC106

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Basis for Conclusions on

IAS 1 Presentation of Financial Statements
The International Accounting Standards Board revised IAS 1 Presentation of Financial Statements
in 2007 as part of its project on financial statement presentation. It was not the Board’s intention to
reconsider as part of that project all the requirements in IAS 1.

For convenience, the Board has incorporated into this Basis for Conclusions relevant material from the
Basis for Conclusions on the revision of IAS 1 in 2003 and its amendment in 2005. Paragraphs have been
renumbered and reorganised as necessary to reflect the new structure of the Standard.

This Basis for Conclusions accompanies, but is not part of, IAS 1.

Introduction

BC1 The International Accounting Standards Committee (IASC) issued the first version
of IAS 1 Disclosure of Accounting Policies in 1975. It was reformatted in 1994 and
superseded in 1997 by IAS 1 Presentation of Financial Statements.* In 2003 the
International Accounting Standards Board revised IAS 1 as part of the
Improvements project and in 2005 the Board amended it as a consequence of
issuing IFRS 7 Financial Instruments: Disclosures. In 2007 the Board revised IAS 1
again as part of its project on financial statement presentation. This Basis for
Conclusions summarises the Board’s considerations in reaching its conclusions
on revising IAS 1 in 2003, on amending it in 2005 and revising it in 2007.
It includes reasons for accepting some approaches and rejecting others.
Individual Board members gave greater weight to some factors than to others.

The Improvements project—revision of IAS 1 (2003)

BC2 In July 2001 the Board announced that, as part of its initial agenda of technical
projects, it would undertake a project to improve a number of standards,
including IAS 1. The project was undertaken in the light of queries and criticisms
raised in relation to the standards by securities regulators, professional
accountants and other interested parties. The objectives of the Improvements
project were to reduce or eliminate alternatives, redundancies and conflicts
within standards, to deal with some convergence issues and to make other
improvements. The Board’s intention was not to reconsider the fundamental
approach to the presentation of financial statements established by IAS 1 in 1997.

BC3 In May 2002 the Board published an exposure draft of proposed Improvements to
International Accounting Standards, which contained proposals to revise IAS 1.
The Board received more than 160 comment letters. After considering the
responses the Board issued in 2003 a revised version of IAS 1. In its revision the
Board’s main objectives were:

(a) to provide a framework within which an entity assesses how to present

fairly the effects of transactions and other events, and assesses whether the
result of complying with a requirement in an IFRS would be so misleading
that it would not give a fair presentation;

* IASC did not publish a Basis for Conclusions.

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(b) to base the criteria for classifying liabilities as current or non-current solely
on the conditions existing at the balance sheet date;
(c) to prohibit the presentation of items of income and expense as
‘extraordinary items’;
(d) to specify disclosures about the judgements that management has made in
the process of applying the entity’s accounting policies, apart from those
involving estimations, and that have the most significant effect on the
amounts recognised in the financial statements; and
(e) to specify disclosures about sources of estimation uncertainty at the
balance sheet date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the
next financial year.
BC4 The following sections summarise the Board’s considerations in reaching its
conclusions as part of its Improvements project in 2003:
(a) departures from IFRSs (paragraphs BC23–BC30)
(b) criterion for exemption from requirements (paragraphs BC34–BC36)
(c) effect of events after the reporting period on the classification of liabilities
(paragraphs BC39–BC48)
(d) results of operating activities (paragraphs BC55 and BC56)
(e) minority interest (paragraph BC59)*
(f) extraordinary items (paragraphs BC60–BC64)
(g) disclosure of the judgements management has made in the process of
applying the entity’s accounting policies (paragraphs BC77 and BC78)
(h) disclosure of major sources of estimation uncertainty
(paragraphs BC79–BC84).

Amendment to IAS 1—Capital Disclosures (2005)

BC5 In August 2005 the Board issued an Amendment to IAS 1—Capital Disclosures.
The amendment added to IAS 1 requirements for disclosure of:

(a) the entity’s objectives, policies and processes for managing capital.

(b) quantitative data about what the entity regards as capital.

(c) whether the entity has complied with any capital requirements; and if it
has not complied, the consequences of such non-compliance.

BC6 The following sections summarise the Board’s considerations in reaching its
conclusions as part of its amendment to IAS 1 in 2005:

(a) disclosures about capital (paragraphs BC85–BC89)

(b) objectives, policies and processes for managing capital (paragraphs BC90
and BC91)

* In January 2008 the IASB issued an amended IAS 27 Consolidated and Separate Financial Statements,
which amended ‘minority interest’ to ‘non-controlling interests’.

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(c) externally imposed capital requirements (paragraphs BC92–BC97)

(d) internal capital targets (paragraphs BC98–BC100).

Amendments to IAS 32 and IAS 1—Puttable Financial

Instruments and Obligations Arising on Liquidation (2008)
BC6A In July 2006 the Board published an exposure draft of proposed amendments
to IAS 32 and IAS 1 relating to the classification of puttable instruments
and instruments with obligations arising only on liquidation. The Board
subsequently confirmed the proposals and in February 2008 issued an
amendment that now forms part of IAS 1.

Financial statement presentation—Joint project

BC7 In September 2001 the Board added to its agenda the performance reporting
project (in March 2006 renamed the ‘financial statement presentation project’).
The objective of the project was to enhance the usefulness of information
presented in the income statement. The Board developed a possible new model
for reporting income and expenses and conducted preliminary testing. Similarly,
in the United States, the Financial Accounting Standards Board (FASB) added a
project on performance reporting to its agenda in October 2001, developed its
model and conducted preliminary testing. Constituents raised concerns about
both models and about the fact that they were different.

BC8 In April 2004 the Board and the FASB decided to work on financial statement
presentation as a joint project. They agreed that the project should address
presentation and display not only in the income statement, but also in the other
statements that, together with the income statement, would constitute a
complete set of financial statements—the balance sheet, the statement of changes
in equity, and the cash flow statement. The Board decided to approach the project
in two phases. Phase A would address the statements that constitute a complete
set of financial statements and the periods for which they are required to be
presented. Phase B would be undertaken jointly with the FASB and would
address more fundamental issues relating to presentation and display of
information in the financial statements, including:

(a) consistent principles for aggregating information in each financial

statement.

(b) the totals and subtotals that should be reported in each financial
statement.

(c) whether components of other comprehensive income should be

reclassified to profit or loss and, if so, the characteristics of the transactions
and events that should be reclassified and when reclassification should be
made.

(d) whether the direct or the indirect method of presenting operating cash
flows provides more useful information.

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BC9 In March 2006, as a result of its work in phase A, the Board published an exposure
draft of proposed amendments to IAS 1—A Revised Presentation. The Board received
more than 130 comment letters. The exposure draft proposed amendments that
affected the presentation of owner changes in equity and the presentation of
comprehensive income, but did not propose to change the recognition,
measurement or disclosure of specific transactions and other events required by
other IFRSs. It also proposed to bring IAS 1 largely into line with the US standard—
SFAS 130 Reporting Comprehensive Income. After considering the responses to
the exposure draft the Board issued a revised version of IAS 1. The FASB decided
to consider phases A and B issues together, and therefore did not publish an
exposure draft on phase A.

BC10 The following sections summarise the Board’s considerations in reaching its
conclusions as part of its revision in 2007:

(a) general purpose financial statements (paragraphs BC11–BC13)

(b) titles of financial statements (paragraphs BC14–BC21)

(c) equal prominence (paragraph BC22)

(d) a statement of financial position as at the beginning of the earliest

comparative period (paragraphs BC31 and BC32)

(e) IAS 34 Interim Financial Reporting (paragraph BC33)

(f) reporting owner and non-owner changes in equity

(paragraphs BC37 and BC38)

(g) reporting comprehensive income (paragraphs BC49–BC54)

(h) subtotal for profit or loss (paragraphs BC57 and BC58)

(i) other comprehensive income-related tax effects (paragraphs BC65–BC68)

(j) reclassification adjustments (paragraphs BC69–BC73)

(k) effects of retrospective application or retrospective restatement

(paragraph BC74)

(l) presentation of dividends (paragraph BC75)

(m) IAS 7 Cash Flow Statements (paragraph BC76)

(n) presentation of measures per share (paragraphs BC101–BC104)

(o) effective date and transition (paragraph BC105)

(p) differences from SFAS 130 (paragraph BC106).

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Definitions

General purpose financial statements (paragraph 7)

BC11 The exposure draft of 2006 proposed a change to the explanatory paragraph of
what ‘general purpose financial statements’ include, in order to produce a more
generic definition of a set of financial statements. Paragraph 7 of the exposure
draft stated:

General purpose financial statements include those that are presented separately or
within other public documents such as a regulatory filing or report to shareholders.
[emphasis added]

BC12 Respondents expressed concern about the proposed change. They argued that it
could be understood as defining as general purpose financial statements any
financial statement or set of financial statements filed with a regulator and could
capture documents other than annual reports and prospectuses. They saw this
change as expanding the scope of IAS 1 to documents that previously would not
have contained all of the disclosures required by IAS 1. Respondents pointed out
that the change would particularly affect some entities (such as small private
companies and subsidiaries of public companies with no external users of
financial reports) that are required by law to place their financial statements on
a public file.

BC13 The Board acknowledged that in some countries the law requires entities,
whether public or private, to report to regulatory authorities and include
information in those reports that could be beyond the scope of IAS 1. Because the
Board did not intend to extend the definition of general purpose financial
statements, it decided to eliminate the explanatory paragraph of what ‘general
purpose financial statements’ include, while retaining the definition of ‘general
purpose financial statements’.

Financial statements

Complete set of financial statements

Titles of financial statements (paragraph 10)
BC14 The exposure draft of 2006 proposed changes to the titles of some of the financial
statements—from ‘balance sheet’ to ‘statement of financial position’, from
‘income statement’ to ‘statement of profit or loss’ and from ‘cash flow statement’
to ‘statement of cash flows’. In addition, the exposure draft proposed a ‘statement
of recognised income and expense’ and that all owner changes in equity should
be included in a ‘statement of changes in equity’. The Board did not propose
to make any of these changes of nomenclature mandatory.

BC15 Many respondents opposed the proposed changes, pointing out that the existing
titles had a long tradition and were well understood. However, the Board
reaffirmed its view that the proposed new titles better reflect the function of each
financial statement, and pointed out that an entity could choose to use other
titles in its financial report.

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BC16 The Board reaffirmed its conclusion that the title ‘statement of financial position’
not only better reflects the function of the statement but is consistent with the
Framework for the Preparation and Presentation of Financial Statements, which contains
several references to ‘financial position’. Paragraph 12 of the Framework states
that the objective of financial statements is to provide information about the
financial position, performance and changes in financial position of an entity;
paragraph 19 of the Framework states that information about financial position is
primarily provided in a balance sheet. In the Board’s view, the title ‘balance sheet’
simply reflects that double entry bookkeeping requires debits to equal credits.
It does not identify the content or purpose of the statement. The Board also noted
that ‘financial position’ is a well-known and accepted term, as it has been used in
auditors’ opinions internationally for more than 20 years to describe what the
‘balance sheet’ presents. The Board decided that aligning the statement’s title
with its content and the opinion rendered by the auditor would help the users of
financial statements.

BC17 As to the other statements, respondents suggested that renaming the balance
sheet the ‘statement of financial position’ implied that the ‘cash flow statement’
and the ‘statement of recognised income and expense’ do not also reflect an
entity’s financial position. The Board observed that although the latter
statements reflect changes in an entity’s financial position, neither can be called
a ‘statement of changes in financial position’, as this would not depict their true
function and objective (ie to present cash flows and performance, respectively).
The Board acknowledged that the titles ‘income statement’ and ‘statement of
profit or loss’ are similar in meaning and could be used interchangeably, and
decided to retain the title ‘income statement’ as this is more commonly used.

BC18 The title of the proposed new statement, the ‘statement of recognised income and
expense’, reflects a broader content than the former ‘income statement’.
The statement encompasses both income and expenses recognised in profit or
loss and income and expenses recognised outside profit or loss.

BC19 Many respondents opposed the title ‘statement of recognised income and
expense’, objecting particularly to the use of the term ‘recognised’. The Board
acknowledged that the term ‘recognised’ could also be used to describe the
content of other primary statements as ‘recognition’, explained in paragraph 82
of the Framework, is ‘the process of incorporating in the balance sheet or income
statement an item that meets the definition of an element and satisfies the
criteria for recognition set out in paragraph 83.’ Many respondents suggested
the term ‘statement of comprehensive income’ instead.

BC20 In response to respondents’ concerns and to converge with SFAS 130, the Board
decided to rename the new statement a ‘statement of comprehensive income’.
The term ‘comprehensive income’ is not defined in the Framework but is used in
IAS 1 to describe the change in equity of an entity during a period from
transactions, events and circumstances other than those resulting from
transactions with owners in their capacity as owners. Although the term
‘comprehensive income’ is used to describe the aggregate of all components of
comprehensive income, including profit or loss, the term ‘other comprehensive
income’ refers to income and expenses that under IFRSs are included in
comprehensive income but excluded from profit or loss.

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BC21 In finalising its revision, the Board confirmed that the titles of financial
statements used in this Standard would not be mandatory. The titles will be used
in future IFRSs but are not required to be used by entities in their financial
statements. Some respondents to the exposure draft expressed concern that
non-mandatory titles will result in confusion. However, the Board believes that
making use of the titles non-mandatory will allow time for entities to implement
changes gradually as the new titles become more familiar.

Equal prominence (paragraphs 11 and 12)

BC22 The Board noted that the financial performance of an entity is not assessed by
reference to a single financial statement or a single measure within a financial
statement. The Board believes that the financial performance of an entity can be
assessed only after all aspects of the financial statements are taken into account
and understood in their entirety. Accordingly, the Board decided that in order to
help users of the financial statements to understand the financial performance of
an entity comprehensively, all financial statements within the complete set of
financial statements should be presented with equal prominence.

Departures from IFRSs (paragraphs 19–24)

BC23 IAS 1 (as issued in 1997) permitted an entity to depart from a requirement in a
Standard ‘in the extremely rare circumstances when management concludes that
compliance with a requirement in a Standard would be misleading, and therefore
that departure from a requirement is necessary to achieve a fair presentation’
(paragraph 17, now paragraph 19). When such a departure occurred,
paragraph 18 (now paragraph 20) required extensive disclosure of the facts and
circumstances surrounding the departure and the treatment adopted.

BC24 The Board decided to clarify in paragraph 15 of the Standard that for financial
statements to present fairly the financial position, financial performance and
cash flows of an entity, they must represent faithfully the effects of transactions
and other events in accordance with the definitions and recognition criteria for
assets, liabilities, income and expenses set out in the Framework.

BC25 The Board decided to limit the occasions on which an entity should depart from
a requirement in an IFRS to the extremely rare circumstances in which
management concludes that compliance with the requirement would be so
misleading that it would conflict with the objective of financial statements set
out in the Framework. Guidance on this criterion states that an item of information
would conflict with the objective of financial statements when it does not
represent faithfully the transactions, other events or conditions that it either
purports to represent or could reasonably be expected to represent and,
consequently, it would be likely to influence economic decisions made by users of
financial statements.

BC26 These amendments provide a framework within which an entity assesses how to
present fairly the effects of transactions, other events and conditions, and
whether the result of complying with a requirement in an IFRS would be so
misleading that it would not give a fair presentation.

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BC27 The Board considered whether IAS 1 should be silent on departures from IFRSs.
The Board decided against making that change, because it would remove the
Board’s capability to specify the criteria under which departures from IFRSs
should occur.

BC28 Departing from a requirement in an IFRS when considered necessary to achieve a

fair presentation would conflict with the regulatory framework in some
jurisdictions. The revised IAS 1 takes into account the existence of different
regulatory requirements. It requires that when an entity’s circumstances satisfy
the criterion described in paragraph BC25 for departure from a requirement in an
IFRS, the entity should proceed as follows:

(a) When the relevant regulatory framework requires—or otherwise does not
prohibit—a departure from the requirement, the entity should make that
departure and the disclosures set out in paragraph 20.

(b) When the relevant regulatory framework prohibits departure from the
requirement, the entity should, to the maximum extent possible, reduce
the perceived misleading aspects of compliance by making the disclosures
set out in paragraph 23.

This amendment enables entities to comply with the requirements of IAS 1 when
the relevant regulatory framework prohibits departures from accounting
standards, while retaining the principle that entities should, to the maximum
extent possible, ensure that financial statements provide a fair presentation.

BC29 After considering the comments received on the exposure draft of 2002, the Board
added to IAS 1 a requirement in paragraph 21 to disclose the effect of a departure
from a requirement of an IFRS in a prior period on the current period’s financial
statements. Without this disclosure, users of the entity’s financial statements
could be unaware of the continuing effects of prior period departures.

BC30 In view of the strict criteria for departure from a requirement in an IFRS, IAS 1
includes a rebuttable presumption that if other entities in similar circumstances
comply with the requirement, the entity’s compliance with the requirement
would not be so misleading that it would conflict with the objective of financial
statements set out in the Framework.

Comparative information

A statement of financial position as at the beginning of the earliest

comparative period (paragraph 39)
BC31 The exposure draft of 2006 proposed that a statement of financial position as at
the beginning of the earliest comparative period should be presented as part of a
complete set of financial statements. This statement would provide a basis for
investors and creditors to evaluate information about the entity’s performance
during the period. However, many respondents expressed concern that the
requirement would unnecessarily increase disclosures in financial statements, or
would be impracticable, excessive and costly.

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BC32 By adding a statement of financial position as at the beginning of the earliest

comparative period, the exposure draft proposed that an entity should present
three statements of financial position and two of each of the other statements.
Considering that financial statements from prior years are readily available for
financial analysis, the Board decided to require only two statements of financial
position, except when the financial statements have been affected by
retrospective application or retrospective restatement, as defined in IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors, or when a
reclassification has been made. In those circumstances three statements of
financial position are required.

IAS 34 Interim Financial Reporting

BC33 The Board decided not to reflect in paragraph 8 of IAS 34 (ie the minimum
components of an interim financial report) its decision to require the inclusion of
a statement of financial position as at the beginning of the earliest comparative
period in a complete set of financial statements. IAS 34 has a year-to-date
approach to interim reporting and does not replicate the requirements of IAS 1 in
terms of comparative information.

Criterion for exemption from requirements (paragraphs 41–44)

BC34 IAS 1 as issued in 1997 specified that when the presentation or classification of
items in the financial statements is amended, comparative amounts should be
reclassified unless it is impracticable to do so. Applying a requirement is
impracticable when the entity cannot apply it after making every reasonable
effort to do so.

BC35 The exposure draft of 2002 proposed a different criterion for exemption from
particular requirements. For the reclassification of comparative amounts, and its
proposed new requirement to disclose key assumptions and other sources of
estimation uncertainty at the end of the reporting period (discussed in
paragraphs BC79–BC84), the exposure draft proposed that the criterion for
exemption should be that applying the requirements would require undue cost
or effort.

BC36 In the light of respondents’ comments on the exposure draft, the Board decided
that an exemption based on management’s assessment of undue cost or effort
was too subjective to be applied consistently by different entities. Moreover,
balancing costs and benefits was a task for the Board when it sets accounting
requirements rather than for entities when they apply them. Therefore, the
Board retained the ‘impracticability’ criterion for exemption. This affects the
exemptions now set out in paragraphs 41–43 and 131 of IAS 1. Impracticability is
the only basis on which IFRSs allow specific exemptions from applying particular
requirements when the effect of applying them is material.*

* In 2006 the IASB issued IFRS 8 Operating Segments. As explained in paragraphs BC46 and BC47 of
the Basis for Conclusions on IFRS 8, that IFRS includes an exemption from some requirements if
the necessary information is not available and the cost to develop it would be excessive.

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Reporting owner and non-owner changes in equity

BC37 The exposure draft of 2006 proposed to separate changes in equity of an entity
during a period arising from transactions with owners in their capacity as owners
(ie all owner changes in equity) from other changes in equity (ie non-owner
changes in equity). All owner changes in equity would be presented in the
statement of changes in equity, separately from non-owner changes in equity.

BC38 Most respondents welcomed this proposal and saw this change as an
improvement of financial reporting, by increasing the transparency of those
items recognised in equity that are not reported as part of profit or loss. However,
some respondents pointed out that the terms ‘owner’ and ‘non-owner’ were not
defined in the exposure draft, the Framework or elsewhere in IFRSs, although they
are extensively used in national accounting standards. They also noted that the
terms ‘owner’ and ‘equity holder’ were used interchangeably in the exposure
draft. The Board decided to adopt the term ‘owner’ and use it throughout IAS 1
to converge with SFAS 130, which uses the term in the definition of
‘comprehensive income’.

Statement of financial position

Current assets and current liabilities (paragraphs 68 and 71)

BC38A As part of its improvements project in 2007, the Board identified inconsistent
guidance regarding the current/non-current classification of derivatives. Some
might read the guidance included in paragraph 71 as implying that financial
liabilities classified as held for trading in accordance with IAS 39 Financial
Instruments: Recognition and Measurement* are always required to be presented as
current.

BC38B The Board expects the criteria set out in paragraph 69 to be used to assess whether
a financial liability should be presented as current or non-current. The ‘held for
trading’ category in paragraph 9 of IAS 39* is for measurement purposes and
includes financial assets and liabilities that may not be held primarily for trading
purposes.

BC38C The Board reaffirmed that if a financial liability is held primarily for trading
purposes it should be presented as current regardless of its maturity date.
However, a financial liability that is not held for trading purposes, such as a
derivative that is not a financial guarantee contract or a designated hedging
instrument, should be presented as current or non-current on the basis of its
settlement date. For example, derivatives that have a maturity of more than
twelve months and are expected to be held for more than twelve months after the
reporting period should be presented as non-current assets or liabilities.

* In November 2009 the IASB amended the requirements of IAS 39 relating to classification and
measurement of assets within the scope of IAS 39 and relocated them to IFRS 9 Financial
Instruments. IFRS 9 applies to all assets within the scope of IAS 39. Paragraphs BC38A–BC38D
discuss matters relevant when IAS 1 was issued.

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BC38D Therefore, the Board decided to remove the identified inconsistency by amending
the examples of current liabilities in paragraph 71. The Board also amended
paragraph 68 in respect of current assets to remove a similar inconsistency.

Classification of the liability component of a convertible

instrument (paragraph 69)
BC38E As part of its improvements project in 2007, the Board considered the
classification of the liability component of a convertible instrument as current or
non-current. Paragraph 69(d) of IAS 1 states that when an entity does not have an
unconditional right to defer settlement of a liability for at least twelve months
after the reporting period, the liability should be classified as current. According
to the Framework, conversion of a liability into equity is a form of settlement.

BC38F The application of these requirements means that if the conversion option can be
exercised by the holder at any time, the liability component would be classified
as current. This classification would be required even if the entity would not be
required to settle unconverted instruments with cash or other assets for more
than twelve months after the reporting period.

BC38G IAS 1 and the Framework state that information about the liquidity and solvency
positions of an entity is useful to users. The terms ‘liquidity’ and ‘solvency’ are
associated with the availability of cash to an entity. Issuing equity does not result
in an outflow of cash or other assets of the entity.

BC38H The Board concluded that classifying the liability on the basis of the requirements
to transfer cash or other assets rather than on settlement better reflects the
liquidity and solvency position of an entity, and therefore it decided to amend
IAS 1 accordingly.

BC38I The Board discussed the comments received in response to its exposure draft of
proposed Improvements to IFRSs published in 2007 and noted that some respondents
were concerned that the proposal in the exposure draft would apply to all
liabilities, not just those that are components of convertible instruments as
originally contemplated in the exposure draft. Consequently, in Improvements to
IFRSs issued in April 2009, the Board amended the proposed wording to clarify
that the amendment applies only to the classification of a liability that can, at the
option of the counterparty, be settled by the issue of the entity’s equity
instruments.

Effect of events after the reporting period on the

classification of liabilities (paragraphs 69–76)
BC39 Paragraph 63 of IAS 1 (as issued in 1997) included the following:

An enterprise should continue to classify its long-term interest-bearing liabilities as

non-current, even when they are due to be settled within twelve months of the balance
sheet date if:
(a) the original term was for a period of more than twelve months;
(b) the enterprise intends to refinance the obligation on a long-term basis; and
(c) that intention is supported by an agreement to refinance, or to reschedule payments,
which is completed before the financial statements are authorised for issue.

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BC40 Paragraph 65 stated:

Some borrowing agreements incorporate undertakings by the borrower (covenants)

which have the effect that the liability becomes payable on demand if certain conditions
related to the borrower’s financial position are breached. In these circumstances, the
liability is classified as non-current only when:
(a) the lender has agreed, prior to the authorisation of the financial statements for
issue, not to demand payment as a consequence of the breach; and
(b) it is not probable that further breaches will occur within twelve months of the
balance sheet date.

BC41 The Board considered these requirements and concluded that refinancing, or the
receipt of a waiver of the lender’s right to demand payment, that occurs after the
reporting period should not be taken into account in the classification of a
liability.

BC42 Therefore, the exposure draft of 2002 proposed:

(a) to amend paragraph 63 to specify that a long-term financial liability due to

be settled within twelve months of the balance sheet date should not be
classified as a non-current liability because an agreement to refinance, or
to reschedule payments, on a long-term basis is completed after the balance
sheet date and before the financial statements are authorised for issue.
This amendment would not affect the classification of a liability as
non-current when the entity has, under the terms of an existing loan
facility, the discretion to refinance or roll over its obligations for at least
twelve months after the balance sheet date.

(b) to amend paragraph 65 to specify that a long-term financial liability that is

payable on demand because the entity breached a condition of its loan
agreement should be classified as current at the balance sheet date even if
the lender has agreed after the balance sheet date, and before the financial
statements are authorised for issue, not to demand payment as a
consequence of the breach. However, if the lender has agreed by the
balance sheet date to provide a period of grace within which the entity can
rectify the breach and during which the lender cannot demand immediate
repayment, the liability is classified as non-current if it is due for
settlement, without that breach of the loan agreement, at least twelve
months after the balance sheet date and:

(i) the entity rectifies the breach within the period of grace; or

(ii) when the financial statements are authorised for issue, the period of
grace is incomplete and it is probable that the breach will be rectified.

BC43 Some respondents disagreed with these proposals. They advocated classifying a
liability as current or non-current according to whether it is expected to use
current assets of the entity, rather than strictly on the basis of its date of maturity
and whether it is callable at the end of the reporting period. In their view, this
would provide more relevant information about the liability’s future effect on the
timing of the entity’s resource flows.

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BC44 However, the Board decided that the following arguments for changing
paragraphs 63 and 65 were more persuasive:

(a) refinancing a liability after the balance sheet date does not affect the
entity’s liquidity and solvency at the balance sheet date, the reporting of which
should reflect contractual arrangements in force on that date. Therefore, it
is a non-adjusting event in accordance with IAS 10 Events after the Balance
Sheet Date and should not affect the presentation of the entity’s balance
sheet.

(b) it is illogical to adopt a criterion that ‘non-current’ classification of short-

term obligations expected to be rolled over for at least twelve months after
the balance sheet date depends on whether the roll-over is at the discretion
of the entity, and then to provide an exception based on refinancing
occurring after the balance sheet date.

(c) in the circumstances set out in paragraph 65, unless the lender has waived
its right to demand immediate repayment or granted a period of grace
within which the entity may rectify the breach of the loan agreement, the
financial condition of the entity at the balance sheet date was that the
entity did not hold an absolute right to defer repayment, based on the
terms of the loan agreement. The granting of a waiver or a period of grace
changes the terms of the loan agreement. Therefore, an entity’s receipt
from the lender, after the balance sheet date, of a waiver or a period of
grace of at least twelve months does not change the nature of the liability
to non-current until it occurs.

BC45 IAS 1 now includes the amendments proposed in 2002, with one change.
The change relates to the classification of a long-term loan when, at the end of the
reporting period, the lender has provided a period of grace within which a breach
of the loan agreement can be rectified, and during which period the lender
cannot demand immediate repayment of the loan.

BC46 The exposure draft proposed that such a loan should be classified as non-current
if it is due for settlement, without the breach, at least twelve months after the
balance sheet date and:

(a) the entity rectifies the breach within the period of grace; or

(b) when the financial statements are authorised for issue, the period of grace
is incomplete and it is probable that the breach will be rectified.

BC47 After considering respondents’ comments, the Board decided that the occurrence
or probability of a rectification of a breach after the reporting period is irrelevant
to the conditions existing at the end of the reporting period. The revised IAS 1
requires that, for the loan to be classified as non-current, the period of grace must
end at least twelve months after the reporting period (see paragraph 75).
Therefore, the conditions (a) and (b) in paragraph BC46 are redundant.

BC48 The Board considered arguments that if a period of grace to remedy a breach of a
long-term loan agreement is provided before the end of the reporting period, the
loan should be classified as non-current regardless of the length of the period of
grace. These arguments are based on the view that, at the end of the reporting
period, the lender does not have an unconditional legal right to demand

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repayment before the original maturity date (ie if the entity remedies the breach
during the period of grace, it is entitled to repay the loan on the original maturity
date). However, the Board concluded that an entity should classify a loan as
non-current only if it has an unconditional right to defer settlement of the loan
for at least twelve months after the reporting period. This criterion focuses on the
legal rights of the entity, rather than those of the lender.

Statement of comprehensive income

Reporting comprehensive income (paragraph 81)

BC49 The exposure draft of 2006 proposed that all non-owner changes in equity should
be presented in a single statement or in two statements. In a single-statement
presentation, all items of income and expense are presented together. In a
two-statement presentation, the first statement (‘income statement’) presents
income and expenses recognised in profit or loss and the second statement
(‘statement of comprehensive income’) begins with profit or loss and presents, in
addition, items of income and expense that IFRSs require or permit to be
recognised outside profit or loss. Such items include, for example, translation
differences related to foreign operations and gains or losses on available-for-sale*
financial assets. The statement of comprehensive income does not include
transactions with owners in their capacity as owners. Such transactions are
presented in the statement of changes in equity.

BC50 Respondents to the exposure draft had mixed views about whether the Board
should permit a choice of displaying non-owner changes in equity in one
statement or two statements. Many respondents agreed with the Board’s proposal
to maintain the two-statement approach and the single-statement approach as
alternatives and a few urged the Board to mandate one of them. However, most
respondents preferred the two-statement approach because it distinguishes profit
or loss and total comprehensive income; they believe that with the two-statement
approach, the ‘income statement’ remains a primary financial statement.
Respondents supported the presentation of two separate statements as a
transition measure until the Board develops principles to determine the criteria
for inclusion of items in profit or loss or in other comprehensive income.

BC51 The exposure draft of 2006 expressed the Board’s preference for a single
statement of all non-owner changes in equity. The Board provided several reasons
for this preference. All items of non-owner changes in equity meet the definitions
of income and expenses in the Framework. The Framework does not define profit or
loss, nor does it provide criteria for distinguishing the characteristics of items
that should be included in profit or loss from those items that should be excluded
from profit or loss. Therefore, the Board decided that it was conceptually correct
for an entity to present all non-owner changes in equity (ie all income and
expenses recognised in a period) in a single statement because there are no clear
principles or common characteristics that can be used to separate income and
expenses into two statements.

* IFRS 9 Financial Instruments, issued in November 2009, eliminated the category of available-for-sale
financial assets. This paragraph discusses matters relevant when IAS 1 was issued.

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BC52 However, in the Board’s discussions with interested parties, it was clear that many
were strongly opposed to the concept of a single statement. They argued that
there would be undue focus on the bottom line of the single statement.
In addition, many argued that it was premature for the Board to conclude that
presentation of income and expense in a single statement was an improvement
in financial reporting without also addressing the other aspects of presentation
and display, namely deciding what categories and line items should be presented
in a statement of recognised income and expense.

BC53 In the light of these views, although it preferred a single statement, the Board
decided that an entity should have the choice of presenting all income and
expenses recognised in a period in one statement or in two statements. An entity
is prohibited from presenting components of income and expense (ie non-owner
changes in equity) in the statement of changes in equity.

BC54 Many respondents disagreed with the Board’s preference and thought that a
decision at this stage would be premature. In their view the decision about a
single-statement or two-statement approach should be subject to further
consideration. They urged the Board to address other aspects of presentation and
display, namely deciding which categories and line items should be presented in
a ‘statement of comprehensive income’. The Board reaffirmed its reasons for
preferring a single-statement approach and agreed to address other aspects of
display and presentation in the next stage of the project.

Results of operating activities

BC55 IAS 1 omits the requirement in the 1997 version to disclose the results of
operating activities as a line item in the income statement. ‘Operating activities’
are not defined in IAS 1, and the Board decided not to require disclosure of an
undefined item.

BC56 The Board recognises that an entity may elect to disclose the results of operating
activities, or a similar line item, even though this term is not defined. In such
cases, the Board notes that the entity should ensure that the amount disclosed is
representative of activities that would normally be regarded as ‘operating’. In the
Board’s view, it would be misleading and would impair the comparability of
financial statements if items of an operating nature were excluded from the
results of operating activities, even if that had been industry practice.
For example, it would be inappropriate to exclude items clearly related to
operations (such as inventory write-downs and restructuring and relocation
expenses) because they occur irregularly or infrequently or are unusual in
amount. Similarly, it would be inappropriate to exclude items on the grounds
that they do not involve cash flows, such as depreciation and amortisation
expenses.

Subtotal for profit or loss (paragraph 82)

BC57 As revised, IAS 1 requires a subtotal for profit or loss in the statement of
comprehensive income. If an entity chooses to present comprehensive income by
using two statements, it should begin the second statement with profit or loss—
the bottom line of the first statement (the ‘income statement’)—and display the
components of other comprehensive income immediately after that. The Board

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concluded that this is the best way to achieve the objective of equal prominence
(see paragraph BC22) for the presentation of income and expenses. An entity that
chooses to display comprehensive income in one statement should include profit
or loss as a subtotal within that statement.

BC58 The Board acknowledged that the items included in profit or loss do not possess
any unique characteristics that allow them to be distinguished from items that
are included in other comprehensive income. However, the Board and its
predecessor have required some items to be recognised outside profit or loss.
The Board will deliberate in the next stage of the project how items of income and
expense should be presented in the statement of comprehensive income.

Minority interest (paragraph 83)*

BC59 IAS 1 requires the ‘profit or loss attributable to minority interest’ and ‘profit or loss
attributable to owners of the parent’ each to be presented in the income statement
in accordance with paragraph 83. These amounts are to be presented as allocations
of profit or loss, not as items of income or expense. A similar requirement has been
added for the statement of changes in equity, in paragraph 106(a). These changes
are consistent with IAS 27 Consolidated and Separate Financial Statements, which
requires that in a consolidated balance sheet (now called ‘statement of financial
position’), minority interest is presented within equity because it does not meet the
definition of a liability in the Framework.

Extraordinary items (paragraph 87)

BC60 IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies
(issued in 1993) required extraordinary items to be disclosed in the income
statement separately from the profit or loss from ordinary activities. That
standard defined ‘extraordinary items’ as ‘income or expenses that arise from
events or transactions that are clearly distinct from the ordinary activities of the
enterprise and therefore are not expected to recur frequently or regularly’.

BC61 In 2002, the Board decided to eliminate the concept of extraordinary items from
IAS 8 and to prohibit the presentation of items of income and expense as
‘extraordinary items’ in the income statement and the notes. Therefore, in
accordance with IAS 1, no items of income and expense are to be presented as
arising from outside the entity’s ordinary activities.

BC62 Some respondents to the exposure draft of 2002 argued that extraordinary items
should be presented in a separate component of the income statement because
they are clearly distinct from all of the other items of income and expense, and
because such presentation highlights to users of financial statements the items of
income and expense to which the least attention should be given when predicting
an entity’s future performance.

* In January 2008 the IASB issued an amended IAS 27 Consolidated and Separate Financial Statements,
which amended ‘minority interest’ to ‘non-controlling interests’.

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BC63 The Board decided that items treated as extraordinary result from the normal
business risks faced by an entity and do not warrant presentation in a separate
component of the income statement. The nature or function of a transaction or
other event, rather than its frequency, should determine its presentation within
the income statement. Items currently classified as ‘extraordinary’ are only a
subset of the items of income and expense that may warrant disclosure to assist
users in predicting an entity’s future performance.

BC64 Eliminating the category of extraordinary items eliminates the need for arbitrary
segregation of the effects of related external events—some recurring and others
not—on the profit or loss of an entity for a period. For example, arbitrary
allocations would have been necessary to estimate the financial effect of an
earthquake on an entity’s profit or loss if it occurs during a major cyclical
downturn in economic activity. In addition, paragraph 97 of IAS 1 requires
disclosure of the nature and amount of material items of income and expense.

Other comprehensive income—related tax effects

(paragraphs 90 and 91)
BC65 The exposure draft of 2006 proposed to allow components of ‘other recognised
income and expense’ (now ‘other comprehensive income’) to be presented before
tax effects (‘gross presentation’) or after their related tax effects
(‘net presentation’). The ‘gross presentation’ facilitated the traceability of other
comprehensive income items to profit or loss, because items of profit or loss
are generally displayed before tax. The ‘net presentation’ facilitated the
identification of other comprehensive income items in the equity section of the
statement of financial position. A majority of respondents supported allowing
both approaches. The Board reaffirmed its conclusion that components of other
comprehensive income could be displayed either (a) net of related tax effects or
(b) before related tax effects.

BC66 Regardless of whether a pre-tax or post-tax display was used, the exposure draft
proposed to require disclosure of the amount of income tax expense or benefit
allocated separately to individual components of other comprehensive income, in
line with SFAS 130. Many respondents agreed in principle with this disclosure,
because they agreed that it helped to improve the clarity and transparency of such
information, particularly when components of other comprehensive income are
taxed at rates different from those applied to profit or loss.

BC67 However, most respondents expressed concern about having to trace the tax
effect for each one of the components of other comprehensive income. Several
observed that the tax allocation process is arbitrary (eg it may involve the
application of subjectively determined tax rates) and some pointed out that this
information is not readily available for some industries (eg the insurance sector),
where components of other comprehensive income are multiple and tax
allocation involves a high degree of subjectivity. Others commented that they did
not understand why tax should be attributed to components of comprehensive
income line by line, when this is not a requirement for items in profit or loss.

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BC68 The Board decided to maintain the disclosure of income tax expense or benefit
allocated to each component of other comprehensive income. Users of financial
statements often requested further information on tax amounts relating to
components of other comprehensive income, because tax rates often differed
from those applied to profit or loss. The Board also observed that an entity should
have such tax information available and that a disclosure requirement would
therefore not involve additional cost for preparers of financial statements.

Reclassification adjustments (paragraphs 92–96)

BC69 In the exposure draft of 2006, the Board proposed that an entity should separately
present reclassification adjustments. These adjustments are the amounts
reclassified to profit or loss in the current period that were previously recognised
in other comprehensive income. The Board decided that adjustments necessary
to avoid double-counting items in total comprehensive income when those items
are reclassified to profit or loss in accordance with IFRSs. The Board’s view was
that separate presentation of reclassification adjustments is essential to inform
users of those amounts that are included as income and expenses in different
periods—as income or expenses in other comprehensive income in previous
periods and as income or expenses in profit or loss in the current period. Without
such information, users may find it difficult to assess the effect of
reclassifications on profit or loss and to calculate the overall gain or loss
associated with available-for-sale* financial assets, cash flow hedges and on
translation or disposal of foreign operations.

BC70 Most respondents agreed with the Board’s decision and believe that the disclosure
of reclassification adjustments is important to understanding how components
recognised in profit or loss are related to other items recognised in equity in two
different periods. However, some respondents suggested that the Board should
use the term ‘recycling’, rather than ‘reclassification’ as the former term is more
common. The Board concluded that both terms are similar in meaning, but
decided to use the term ‘reclassification adjustment’ to converge with the
terminology used in SFAS 130.

BC71 The exposure draft proposed to allow the presentation of reclassification

adjustments in the statement of recognised income and expense (now ‘statement
of comprehensive income’) or in the notes. Most respondents supported this
approach.

BC72 Some respondents noted some inconsistencies in the definition of

‘reclassification adjustments’ in the exposure draft (now paragraphs 7 and 93 of
IAS 1). Respondents suggested that the Board should expand the definition in
paragraph 7 to include gains and losses recognised in current periods in addition
to those recognised in earlier periods, to make the definition consistent with
paragraph 93. They commented that, without clarification, there could be
differences between interim and annual reporting, for reclassifications of items
that arise in one interim period and reverse out in a different interim period
within the same annual period.

* IFRS 9 Financial Instruments, issued in November 2009, eliminated the category of available-for-sale
financial assets. This paragraph discusses matters relevant when IAS 1 was issued.

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BC73 The Board decided to align the definition of reclassification adjustments with
SFAS 130 and include an additional reference to ‘current periods’ in paragraph 7.

Statement of changes in equity

Effects of retrospective application or retrospective

restatement (paragraph 106(b))
BC74 Some respondents to the exposure draft of 2006 asked the Board to clarify
whether the effects of retrospective application or retrospective restatement, as
defined in IAS 8, should be regarded as non-owner changes in equity. The Board
noted that IAS 1 specifies that these effects are included in the statement of
changes in equity. However, the Board decided to clarify that the effects of
retrospective application or retrospective restatement are not changes in equity
in the period, but provide a reconciliation between the previous period’s closing
balance and the opening balance in the statement of changes in equity.

Presentation of dividends (paragraph 107)

BC75 The Board reaffirmed its conclusion to require the presentation of dividends in
the statement of changes in equity or in the notes, because dividends are
distributions to owners in their capacity as owners and the statement of changes
in equity presents all owner changes in equity. The Board concluded that an
entity should not present dividends in the statement of comprehensive income
because that statement presents non-owner changes in equity.

Statement of cash flows

IAS 7 Cash Flow Statements (paragraph 111)

BC76 The Board considered whether the operating section of an indirect method
statement of cash flows should begin with total comprehensive income instead of
profit or loss as is required by IAS 7 Cash Flow Statements. When components of
other comprehensive income are non-cash items, they would become reconciling
items in arriving at cash flows from operating activities and would add items to
the statement of cash flows without adding information content. The Board
concluded that an amendment to IAS 7 is not required; however, as mentioned in
paragraph BC14 the Board decided to relabel this financial statement as
‘statement of cash flows’.

Notes

Disclosure of the judgements that management has made in

the process of applying the entity’s accounting policies
(paragraphs 122–124)
BC77 The revised IAS 1 requires disclosure of the judgements, apart from those
involving estimations, that management has made in the process of applying the
entity’s accounting policies and that have the most significant effect on the

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amounts recognised in the financial statements (see paragraph 122). An example

of these judgements is how management determines whether financial assets are
held-to-maturity investments. The Board decided that disclosure of the most
important of these judgements would enable users of financial statements to
understand better how the accounting policies are applied and to make
comparisons between entities regarding the basis on which managements make
these judgements.
BC78 Comments received on the exposure draft of 2002 indicated that the purpose of
the proposed disclosure was unclear. Accordingly, the Board amended the
disclosure explicitly to exclude judgements involving estimations (which are the
subject of the disclosure in paragraph 125) and added another four examples of
the types of judgements disclosed (see paragraphs 123 and 124).

Disclosure of major sources of estimation uncertainty

(paragraphs 125–133)
BC79 IAS 1 requires disclosure of the assumptions concerning the future, and other
major sources of estimation uncertainty at the end of the reporting period, that
have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year. For those assets and
liabilities, the proposed disclosures include details of:
(a) their nature; and
(b) their carrying amount as at the end of the reporting period
(see paragraph 125).
BC80 Determining the carrying amounts of some assets and liabilities requires
estimation of the effects of uncertain future events on those assets and liabilities
at the end of the reporting period. For example, in the absence of recently
observed market prices used to measure the following assets and liabilities,
future-oriented estimates are necessary to measure the recoverable amount of
classes of property, plant and equipment, the effect of technological obsolescence
of inventories, provisions subject to the future outcome of litigation in progress,
and long-term employee benefit liabilities such as pension obligations. These
estimates involve assumptions about items such as the risk adjustment to cash
flows or discount rates used, future changes in salaries and future changes in
prices affecting other costs. No matter how diligently an entity estimates the
carrying amounts of assets and liabilities subject to significant estimation
uncertainty at the end of the reporting period, the reporting of point estimates in
the statement of financial position cannot provide information about the
estimation uncertainties involved in measuring those assets and liabilities and
the implications of those uncertainties for the period’s profit or loss.
BC81 The Framework states that ‘The economic decisions that are made by users of
financial statements require an evaluation of the ability of an entity to generate
cash and cash equivalents and of the timing and certainty of their generation.’
The Board decided that disclosure of information about assumptions and other
major sources of estimation uncertainty at the end of the reporting period
enhances the relevance, reliability and understandability of the information
reported in financial statements. These assumptions and other sources of
estimation uncertainty relate to estimates that require management’s most

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difficult, subjective or complex judgements. Therefore, disclosure in accordance

with paragraph 125 of the revised IAS 1 would be made in respect of relatively few
assets or liabilities (or classes of them).

BC82 The exposure draft of 2002 proposed the disclosure of some ‘sources of
measurement uncertainty’. In the light of comments received that the purpose
of this disclosure was unclear, the Board decided:

(a) to amend the subject of that disclosure to ‘sources of estimation

uncertainty at the end of the reporting period’; and

(b) to clarify in the revised Standard that the disclosure does not apply to
assets and liabilities measured at fair value based on recently observed
market prices (see paragraph 128 of IAS 1).

BC83 When assets and liabilities are measured at fair value on the basis of recently
observed market prices, future changes in carrying amounts would not result
from using estimates to measure the assets and liabilities at the end of the
reporting period. Using observed market prices to measure assets or liabilities
obviates the need for estimates at the end of the reporting period. The market
prices properly reflect the fair values at the end of the reporting period, even
though future market prices could be different. The objective of fair value
measurement is to reflect fair value at the measurement date, not to predict a
future value.

BC84 IAS 1 does not prescribe the particular form or detail of the disclosures.
Circumstances differ from entity to entity, and the nature of estimation
uncertainty at the end of the reporting period has many facets. IAS 1 limits the
scope of the disclosures to items that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year. The longer the future period to which the disclosures relate, the
greater the range of items that would qualify for disclosure, and the less specific
are the disclosures that could be made about particular assets or liabilities.
A period longer than the next financial year might obscure the most relevant
information with other disclosures.

Disclosures about capital (paragraphs 134 and 135)

BC85 In July 2004 the Board published an exposure draft—ED 7 Financial Instruments:
Disclosures. As part of that project, the Board considered whether it should require
disclosures about capital.

BC86 The level of an entity’s capital and how it manages capital are important factors
for users to consider in assessing the risk profile of an entity and its ability to
withstand unexpected adverse events. The level of capital might also affect the
entity’s ability to pay dividends. Consequently, ED 7 proposed disclosures about
capital.

BC87 In ED 7 the Board decided that it should not limit the requirements for disclosures
about capital to entities that are subject to external capital requirements
(eg regulatory capital requirements established by legislation or other regulation).
The Board believes that information about capital is useful for all entities, as is
evidenced by the fact that some entities set internal capital requirements and
norms have been established for some industries. The Board noted that the

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capital disclosures are not intended to replace disclosures required by regulators.

The Board also noted that the financial statements should not be regarded as a
substitute for disclosures to regulators (which may not be available to all users)
because the function of disclosures made to regulators may differ from the
function of those to other users. Therefore, the Board decided that information
about capital should be required of all entities because it is useful to users of
general purpose financial statements. Accordingly, the Board did not distinguish
between the requirements for regulated and non-regulated entities.

BC88 Some respondents to ED 7 questioned the relevance of the capital disclosures in

an IFRS dealing with disclosures relating to financial instruments. The Board
noted that an entity’s capital does not relate solely to financial instruments and,
thus, capital disclosures have more general relevance. Accordingly, the Board
included these disclosures in IAS 1, rather than IFRS 7 Financial Instruments:
Disclosures, the IFRS resulting from ED 7.

BC89 The Board also decided that an entity’s decision to adopt the amendments to IAS 1
should be independent of the entity’s decision to adopt IFRS 7. The Board noted
that issuing a separate amendment facilitates separate adoption decisions.

Objectives, policies and processes for managing capital

(paragraph 136)
BC90 The Board decided that disclosure about capital should be placed in the context
of a discussion of the entity’s objectives, policies and processes for managing
capital. This is because the Board believes that such a discussion both
communicates important information about the entity’s capital strategy and
provides the context for other disclosures.

BC91 The Board considered whether an entity can have a view of capital that differs
from what IFRSs define as equity. The Board noted that, although for the
purposes of this disclosure capital would often equate with equity as defined in
IFRSs, it might also include or exclude some components. The Board also noted
that this disclosure is intended to give entities the opportunity to describe how
they view the components of capital they manage, if this is different from what
IFRSs define as equity.

Externally imposed capital requirements (paragraph 136)

BC92 The Board considered whether it should require disclosure of any externally
imposed capital requirements. Such a capital requirement could be:

(a) an industry-wide requirement with which all entities in the industry must
comply; or

(b) an entity-specific requirement imposed on a particular entity by its

prudential supervisor or other regulator.

BC93 The Board noted that some industries and countries have industry-wide capital
requirements, and others do not. Thus, the Board concluded that it should not
require disclosure of industry-wide requirements, or compliance with such
requirements, because such disclosure would not lead to comparability between
different entities or between similar entities in different countries.

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BC94 The Board concluded that disclosure of the existence and level of entity-specific
capital requirements is important information for users, because it informs
them about the risk assessment of the regulator. Such disclosure improves
transparency and market discipline.

BC95 However, the Board noted the following arguments against requiring disclosure
of externally imposed entity-specific capital requirements.

(a) Users of financial statements might rely primarily on the regulator’s

assessment of solvency risk without making their own risk assessment.

(b) The focus of a regulator’s risk assessment is for those whose interests the
regulations are intended to protect (eg depositors or policyholders).
This emphasis is different from that of a shareholder. Thus, it could be
misleading to suggest that the regulator’s risk assessment could, or should,
be a substitute for independent analysis by investors.

(c) The disclosure of entity-specific capital requirements imposed by a

regulator might undermine that regulator’s ability to impose such
requirements. For example, the information could cause depositors to
withdraw funds, a prospect that might discourage regulators from
imposing requirements. Furthermore, an entity’s regulatory dialogue
would become public, which might not be appropriate in all circumstances.

(d) Because different regulators have different tools available, for example
formal requirements and moral suasion, a requirement to disclose
entity-specific capital requirements could not be framed in a way that would
lead to the provision of information that is comparable across entities.

(e) Disclosure of capital requirements (and hence, regulatory judgements)

could hamper clear communication to the entity of the regulator’s
assessment by creating incentives to use moral suasion and other informal
mechanisms.

(f) Disclosure requirements should not focus on entity-specific capital

requirements in isolation, but should focus on how entity-specific capital
requirements affect how an entity manages and determines the adequacy
of its capital resources.

(g) A requirement to disclose entity-specific capital requirements imposed by a

regulator is not part of Pillar 3 of the Basel II Framework developed by the
Basel Committee on Banking Supervision.

BC96 Taking into account all of the above arguments, the Board decided not to require
quantitative disclosure of externally imposed capital requirements. Rather, it
decided to require disclosures about whether the entity complied with any
externally imposed capital requirements during the period and, if not, the
consequences of non-compliance. This retains confidentiality between regulators
and the entity, but alerts users to breaches of capital requirements and their
consequences.

BC97 Some respondents to ED 7 did not agree that breaches of externally imposed
capital requirements should be disclosed. They argued that disclosure about
breaches of externally imposed capital requirements and the associated
regulatory measures subsequently imposed could be disproportionately

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damaging to entities. The Board was not persuaded by these arguments because
it believes that such concerns indicate that information about breaches of
externally imposed capital requirements may often be material by its nature.
The Framework states that ‘Information is material if its omission or misstatement
could influence the economic decisions of users taken on the basis of the financial
statements.’ Similarly, the Board decided not to provide an exemption for
temporary non-compliance with regulatory requirements during the year.
Information that an entity is sufficiently close to its limits to breach them, even
on a temporary basis, is useful for users.

Internal capital targets

BC98 The Board proposed in ED 7 that the requirement to disclose information about
breaches of capital requirements should apply equally to breaches of internally
imposed requirements, because it believed the information is also useful to a user
of the financial statements.

BC99 However, this proposal was criticised by respondents to ED 7 for the following
reasons:

(a) The information is subjective and, thus, not comparable between entities.
In particular, different entities will set internal targets for different
reasons, so a breach of a requirement might signify different things for
different entities. In contrast, a breach of an external requirement has
similar implications for all entities required to comply with similar
requirements.

(b) Capital targets are not more important than other internally set financial
targets, and to require disclosure only of capital targets would provide
users with incomplete, and perhaps misleading, information.

(c) Internal targets are estimates that are subject to change by the entity. It is
not appropriate to require the entity’s performance against this benchmark
to be disclosed.

(d) An internally set capital target can be manipulated by management.

The disclosure requirement could cause management to set the target so
that it would always be achieved, providing little useful information to
users and potentially reducing the effectiveness of the entity’s capital
management.

BC100 As a result, the Board decided not to require disclosure of the capital targets set
by management, whether the entity has complied with those targets, or the
consequences of any non-compliance. However, the Board confirmed its view that
when an entity has policies and processes for managing capital, qualitative
disclosures about these policies and processes are useful. The Board also
concluded that these disclosures, together with disclosure of the components of
equity and their changes during the year (required by paragraphs 106–110), would
give sufficient information about entities that are not regulated or subject to
externally imposed capital requirements.

© IASCF B673
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Puttable financial instruments and obligations arising on

liquidation
BC100A The Board decided to require disclosure of information about puttable
instruments and instruments that impose on the entity an obligation to deliver
to another party a pro rata share of the net assets of the entity only on liquidation
that are reclassified in accordance with paragraphs 16E and 16F of IAS 32. This is
because the Board concluded that this disclosure allows users of financial
statements to understand the effects of any reclassifications.

BC100B The Board also concluded that entities with puttable financial instruments
classified as equity should be required to disclose additional information to allow
users to assess any effect on the entity’s liquidity arising from the ability of the
holder to put the instruments to the issuer. Financial instruments classified as
equity usually do not include any obligation for the entity to deliver a
financial asset to another party. Therefore, the Board concluded that additional
disclosures are needed in these circumstances. In particular, the Board concluded
that entities should disclose the expected cash outflow on redemption or
repurchase of those financial instruments that are classified as equity and
information about how that amount was determined. That information allows
liquidity risk associated with the put obligation and future cash flows to be
evaluated.

Presentation of measures per share

BC101 The exposure draft of 2006 did not propose to change the requirements of IAS 33
Earnings per Share on the presentation of basic and diluted earnings per share.
A majority of respondents agreed with this decision. In their opinion, earnings
per share should be the only measure per share permitted or required in the
statement of comprehensive income and changing those requirements was
beyond the scope of this stage of the financial statement presentation project.

BC102 However, some respondents would like to see alternative measures per share
whenever earnings per share is not viewed as the most relevant measure for
financial analysts (ie credit rating agencies that focus on other measures). A few
respondents proposed that an entity should also display an amount per share for
total comprehensive income, because this was considered a useful measure.
The Board did not support including alternative measures per share in the
financial statements, until totals and subtotals, and principles for aggregating
and disaggregating items, are addressed and discussed as part of the next stage of
the financial statement presentation project.

BC103 Some respondents also interpreted the current provisions in IAS 33 as allowing de
facto a display of alternative measures in the income statement. In its
deliberations, the Board was clear that paragraph 73 of IAS 33 did not leave room
for confusion. However, it decided that the wording in paragraph 73 could be
improved to clarify that alternative measures should be shown ‘only in the notes’.
This will be done when IAS 33 is revisited or as part of the annual improvements
process.

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BC104 One respondent commented that the use of the word ‘earnings’ was
inappropriate in the light of changes proposed in the exposure draft and that the
measure should be denominated ‘profit or loss per share’, instead. The Board
considered that this particular change in terminology was beyond the scope
of IAS 1.

Transition and effective date

BC105 The Board is committed to maintaining a ‘stable platform’ of substantially

unchanged standards for annual periods beginning between 1 January 2006 and
31 December 2008. In addition, some preparers will need time to make the system
changes necessary to comply with the revisions to IAS 1. Therefore, the Board
decided that the effective date of IAS 1 should be annual periods beginning on or
after 1 January 2009, with earlier application permitted.

Differences from SFAS 130

BC106 In developing IAS 1, the Board identified the following differences from SFAS 130:

(a) Reporting and display of comprehensive income Paragraph 22 of SFAS 130

permits a choice of displaying comprehensive income and its components,
in one or two statements of financial performance or in a statement of
changes in equity. IAS 1 (as revised in 2007) does not permit display in a
statement of changes in equity.

(b) Reporting other comprehensive income in the equity section of a statement

of financial position Paragraph 26 of SFAS 130 specifically states that the
total of other comprehensive income is reported separately from retained
earnings and additional paid-in capital in a statement of financial position
at the end of the period. A descriptive title such as accumulated other
comprehensive income is used for that component of equity. An entity
discloses accumulated balances for each classification in that separate
component of equity in a statement of financial position, in a statement of
changes in equity, or in notes to the financial statements. IAS 1 (as revised
in 2007) does not specifically require the display of a total of accumulated
other comprehensive income in the statement of financial position.

(c) Display of the share of other comprehensive income items of associates and
joint ventures accounted for using the equity method Paragraph 82 of IAS 1
(as revised in 2007) requires the display in the statement of comprehensive
income of the investor’s share of the investee’s other comprehensive
income. Paragraph 122 of SFAS 130 does not specify how that information
should be displayed. An investor is permitted to combine its proportionate
share of other comprehensive income amounts with its own other
comprehensive income items and display the aggregate of those amounts
in an income statement type format or in a statement of changes in equity.

© IASCF B675
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Appendix
Amendments to the Basis for Conclusions on other IFRSs
This appendix contains amendments to the Basis for Conclusions on other IFRSs that are necessary in
order to ensure consistency with the revised IAS 1. Amended paragraphs are shown with the new text
underlined and deleted text struck through.

*****

The amendments contained in this appendix when this Standard was revised in 2007 have been
incorporated into the relevant pronouncements published in this volume.

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Dissenting opinions

Dissent of Mary E Barth, Anthony T Cope, Robert P Garnett

and James J Leisenring from IAS 1 (as revised in September
2007)
DO1 Professor Barth and Messrs Cope, Garnett and Leisenring voted against the issue
of IAS 1 Presentation of Financial Statements in 2007. The reasons for their dissent are
set out below.

DO2 Those Board members agree with the requirement to report all items of income
and expense separately from changes in net assets that arise from transactions
with owners in their capacity as owners. Making that distinction clearly is a
significant improvement in financial reporting.

DO3 However, they believe that the decision to permit entities to divide the statement
of comprehensive income into two separate statements is both conceptually
unsound and unwise.

DO4 As noted in paragraph BC51, the Framework does not define profit or loss, or net
income. It also does not indicate what criteria should be used to distinguish
between those items of recognised income and expense that should be included
in profit or loss and those items that should not. In some cases, it is even possible
for identical transactions to be reported inside or outside profit or loss. Indeed,
in that same paragraph, the Board acknowledges these facts, and indicates that it
had a preference for reporting all items of income and expense in a single
statement, believing that a single statement is the conceptually correct approach.
Those Board members believe that some items of income and expense that will
potentially bypass the statement of profit and loss can be as significant to the
assessment of an entity’s performance as items that will be included. Until a
conceptual distinction can be developed to determine whether any items should
be reported in profit or loss or elsewhere, financial statements will lack neutrality
and comparability unless all items are reported in a single statement. In such a
statement, profit or loss can be shown as a subtotal, reflecting current
conventions.

DO5 In the light of those considerations, it is puzzling that most respondents to the
exposure draft that proposed these amendments favoured permitting a
two-statement approach, reasoning that it ‘distinguishes between profit and loss
and total comprehensive income’ (paragraph BC50). Distinguishing between
those items reported in profit or loss and those reported elsewhere is
accomplished by the requirement for relevant subtotals to be included
in a statement of comprehensive income. Respondents also stated that a
two-statement approach gives primacy to the ‘income statement’; that conflicts
with the Board’s requirement in paragraph 11 of IAS 1 to give equal prominence
to all financial statements within a set of financial statements.

DO6 Those Board members also believe that the amendments are flawed by offering
entities a choice of presentation methods. The Board has expressed a desire to
reduce alternatives in IFRSs. The Preface to International Financial Reporting Standards,
in paragraph 13, states: ‘the IASB intends not to permit choices in accounting
treatment … and will continue to reconsider … those transactions and events for

© IASCF B677
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which IASs permit a choice of accounting treatment, with the objective of

reducing the number of those choices.’ The Preface extends this objective to both
accounting and reporting. The same paragraph states: ‘The IASB’s objective is to
require like transactions and events to be accounted for and reported in a like way
and unlike transactions and events to be accounted for and reported differently’
(emphasis added). By permitting a choice in this instance, the IASB has
abandoned that principle.

DO7 Finally, the four Board members believe that allowing a choice of presentation at
this time will ingrain practice, and make achievement of the conceptually correct
presentation more difficult as the long-term project on financial statement
presentation proceeds.

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Guidance on implementing
IAS 1 Presentation of Financial Statements
This guidance accompanies, but is not part of, IAS 1.

Illustrative financial statement structure

IG1 IAS 1 sets out the components of financial statements and minimum
requirements for disclosure in the statements of financial position,
comprehensive income and changes in equity. It also describes further items that
may be presented either in the relevant financial statement or in the notes.
This guidance provides simple examples of ways in which the requirements of IAS 1
for the presentation of the statements of financial position, comprehensive
income and changes in equity might be met. An entity should change the order
of presentation, the titles of the statements and the descriptions used for line
items when necessary to suit its particular circumstances.

IG2 The guidance is in two sections. Paragraphs IG3–IG6 provide examples of the
presentation of financial statements. Paragraphs IG7–IG9 have been deleted.
Paragraphs IG10 and IG11 provide examples of capital disclosures.

IG3 The illustrative statement of financial position shows one way in which an entity
may present a statement of financial position distinguishing between current
and non-current items. Other formats may be equally appropriate, provided the
distinction is clear.

IG4 The illustrations use the term ‘comprehensive income’ to label the total of all
components of comprehensive income, including profit or loss. The illustrations
use the term ‘other comprehensive income’ to label income and expenses that are
included in comprehensive income but excluded from profit or loss. IAS 1 does
not require an entity to use those terms in its financial statements.

IG5 Two statements of comprehensive income are provided, to illustrate the

alternative presentations of income and expenses in a single statement or in two
statements. The single statement of comprehensive income illustrates the
classification of income and expenses within profit or loss by function.
The separate statement (in this example, ‘the income statement’) illustrates the
classification of income and expenses within profit by nature.

IG6 The examples are not intended to illustrate all aspects of IFRSs, nor do they
constitute a complete set of financial statements, which would also include a
statement of cash flows, a summary of significant accounting policies and other
explanatory information.

© IASCF B679
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Part I: Illustrative presentation of financial statements

XYZ Group – Statement of financial position as at 31 December 20X7

(in thousands of currency units)
31 Dec 20X7 31 Dec 20X6
ASSETS
Non-current assets
Property, plant and equipment 350,700 360,020
Goodwill 80,800 91,200
Other intangible assets 227,470 227,470
Investments in associates 100,150 110,770
Investments in equity instruments 142,500 156,000
901,620 945,460
Current assets
Inventories 135,230 132,500
Trade receivables 91,600 110,800
Other current assets 25,650 12,540
Cash and cash equivalents 312,400 322,900
564,880 578,740
Total assets 1,466,500 1,524,200

continued...

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...continued
XYZ Group – Statement of financial position as at 31 December 20X7
(in thousands of currency units)
31 Dec 20X7 31 Dec 20X6
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 650,000 600,000
Retained earnings 243,500 161,700
Other components of equity 10,200 21,200
903,700 782,900
Non-controlling interests 70,050 48,600
Total equity 973,750 831,500

Non-current liabilities
Long-term borrowings 120,000 160,000
Deferred tax 28,800 26,040
Long-term provisions 28,850 52,240
Total non-current liabilities 177,650 238,280

Current liabilities
Trade and other payables 115,100 187,620
Short-term borrowings 150,000 200,000
Current portion of long-term borrowings 10,000 20,000
Current tax payable 35,000 42,000
Short-term provisions 5,000 4,800
Total current liabilities 315,100 454,420
Total liabilities 492,750 692,700
Total equity and liabilities 1,466,500 1,524,200

© IASCF B681
IAS 1 IG

XYZ Group – Statement of comprehensive income for the year ended

31 December 20X7
(illustrating the presentation of comprehensive income in one
statement and the classification of expenses within profit by function)
(in thousands of currency units)
20X7 20X6
Revenue 390,000 355,000
Cost of sales (245,000) (230,000)
Gross profit 145,000 125,000
Other income 20,667 11,300
Distribution costs (9,000) (8,700)
Administrative expenses (20,000) (21,000)
Other expenses (2,100) (1,200)
Finance costs (8,000) (7,500)
Share of profit of associates(a) 35,100 30,100
Profit before tax 161,667 128,000
Income tax expense (40,417) (32,000)
Profit for the year from continuing operations 121,250 96,000
Loss for the year from discontinued operations – (30,500)
PROFIT FOR THE YEAR 121,250 65,500
Other comprehensive income:
Exchange differences on translating foreign operations(b) 5,334 10,667
Investments in equity instruments (24,000) 26,667
Cash flow hedges(b) (667) (4,000)
Gains on property revaluation 933 3,367
Actuarial gains (losses) on defined benefit pension plans (667) 1,333
Share of other comprehensive income of associates(c) 400 (700)
Income tax relating to components of other comprehensive
income(d) 4,667 (9,334)
Other comprehensive income for the year, net of tax (14,000) 28,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 107,250 93,500

continued...

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...continued
XYZ Group – Statement of comprehensive income for the year ended
31 December 20X7
(illustrating the presentation of comprehensive income in one
statement and the classification of expenses within profit by function)
(in thousands of currency units)
20X7 20X6
Profit attributable to:
Owners of the parent 97,000 52,400
Non-controlling interests 24,250 13,100
121,250 65,500

Total comprehensive income attributable to:

Owners of the parent 85,800 74,800
Non-controlling interests 21,450 18,700
107,250 93,500

Earnings per share (in currency units):

Basic and diluted 0.46 0.30

Alternatively, components of other comprehensive income could be presented in the

statement of comprehensive income net of tax:

Other comprehensive income for the year, after tax: 20X7 20X7
Exchange differences on translating foreign operations 4,000 8,000
Investments in equity instruments (18,000) 20,000
Cash flow hedges (500) (3000)
Gains on property revaluation 600 2,700
Actuarial gains (losses) on defined benefit pension plans (500) 1,000
Share of other comprehensive income of associates 400 (700)
(d)
Other comprehensive income for the year, net of tax (14,000) 28,000

(a) This means the share of associates’ other comprehensive income attributable to owners of the
associates, ie it is after tax and non-controlling interests in the associates.
(b) This illustrates the aggregated presentation, with disclosure of the current year gain or loss and
reclassification adjustment presented in the notes. Alternatively, a gross presentation can be used.
(c) This means the share of associates’ other comprehensive income attributable to owners of the
associates, ie it is after tax and non-controlling interests in the associates.
(d) The income tax relating to each component of other comprehensive income is disclosed in the
notes.

© IASCF B683
IAS 1 IG

XYZ Group – Income statement for the year ended 31 December 20X7
(illustrating the presentation of comprehensive income in two statements and
classification of expenses within profit by nature)
(in thousands of currency units)
20X7 20X6
Revenue 390,000 355,000
Other income 20,667 11,300
Changes in inventories of finished goods and work in
progress (115,100) (107,900)
Work performed by the entity and capitalised 16,000 15,000
Raw material and consumables used (96,000) (92,000)
Employee benefits expense (45,000) (43,000)
Depreciation and amortisation expense (19,000) (17,000)
Impairment of property, plant and equipment (4,000) –
Other expenses (6,000) (5,500)
Finance costs (15,000) (18,000)
Share of profit of associates(e) 35,100 30,100
Profit before tax 161,667 128,000
Income tax expense (40,417) (32,000)
Profit for the year from continuing operations 121,250 96,000
Loss for the year from discontinued operations – (30,500)
PROFIT FOR THE YEAR 121,250 65,500

Profit attributable to:

Owners of the parent 97,000 52,400
Non-controlling interests 24,250 13,100
121,250 65,500

Earnings per share (in currency units):

Basic and diluted 0.46 0.30

(e) This means the share of associates’ profit attributable to owners of the associates, ie it is after tax
and non-controlling interests in the associates.

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XYZ Group – Statement of comprehensive income for the year ended

31 December 20X7
(illustrating the presentation of comprehensive income in two statements)
(in thousands of currency units)
20X7 20X6
Profit for the year 121,250 65,500
Other comprehensive income:
Exchange differences on translating foreign operations 5,334 10,667
Investments in equity instruments (24,000) 26,667
Cash flow hedges (667) (4,000)
Gains on property revaluation 933 3,367
Actuarial gains (losses) on defined benefit pension plans (667) 1,333
(f)
Share of other comprehensive income of associates 400 (700)
Income tax relating to components of other comprehensive
income(g) 4,667 (9,334)
Other comprehensive income for the year, net of tax (14,000) 28,000
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR 107,250 93,500

Total comprehensive income attributable to:

Owners of the parent 85,800 74,800
Non-controlling interests 21,450 18,700
107,250 93,500

Alternatively, components of other comprehensive income could be presented, net of tax.

Refer to the statement of comprehensive income illustrating the presentation of income
and expenses in one statement.

(f) This means the share of associates’ other comprehensive income attributable to owners of the
associates, ie it is after tax and non-controlling interests in the associates.
(g) The income tax relating to each component of other comprehensive income is disclosed in the
notes.

© IASCF B685
IAS 1 IG

XYZ Group
Disclosure of components of other comprehensive income(h)
Notes
Year ended 31 December 20X7
(in thousands of currency units)
20X7 20X6
Other comprehensive income:
Exchange differences on translating
foreign operations(i) 5,334 10,667
Investments in equity instruments (24,000) 26,667
Cash flow hedges:
Gains (losses) arising during the year (4,667) (4,000)
Less: Reclassification adjustments for
gains (losses) included in profit or loss 3,333 –
Less: Adjustments for amounts
transferred to initial carrying amount
of hedged items 667 (667) – (4,000)

Gains on property revaluation 933 3,367

Actuarial gains (losses) on defined benefit
pension plans (667) 1,333
Share of other comprehensive income of
associates 400 (700)
Other comprehensive income (18,667) 37,334
Income tax relating to components of
other comprehensive income(j) 4,667 (9,334)
Other comprehensive income for the
year (14,000) 28,000

(h) When an entity chooses an aggregated presentation in the statement of comprehensive income,
the amounts for reclassification adjustments and current year gain or loss are presented in the
notes.
(i) There was no disposal of a foreign operation. Therefore, there is no reclassification adjustment
for the years presented.
(j) The income tax relating to each component of other comprehensive income is disclosed in the
notes.

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XYZ Group
Disclosure of tax effects relating to each component of other
comprehensive income
Notes
Year ended 31 December 20X7
(in thousands of currency units)
20X7 20X6
Before-tax Tax Net-of-tax Before-tax Tax Net-of-tax
amount (expense) amount amount (expense) amount
benefit benefit
Exchange
differences on
translating
foreign
operations 5,334 (1,334) 4,000 10,667 (2,667) 8,000
Investments in equity
instruments (24,000) 6,000 (18,000) 26,667 (6,667) 20,000
Cash flow hedges (667) 167 (500) (4,000) 1,000 (3,000)
Gains on
property
revaluation 933 (333) 600 3,367 (667) 2,700
Actuarial gains
(losses) on
defined benefit
pension plans (667) 167 (500) 1,333 (333) 1,000
Share of other
comprehensive
income of
associates 400 – 400 (700) – (700)
Other
comprehensive
income (18,667) 4,667 (14,000) 37,334 (9,334) 28,000

© IASCF B687
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XYZ Group – Statement of changes in equity for the year ended

31 December 20X7
(in thousands of currency units)
Share Retained Translation Available- Cash flow Revaluation Total Non- Total
capital earnings of foreign for-sale hedges surplus controlling equity
operations financial interests
assets
Balance at
1 January 20X6 600,000 118,100 (4,000) 1,600 2,000 – 717,700 29,800 747,500
Changes in accounting
policy – 400 – – – – 400 100 500
Restated balance 600,000 118,500 (4,000) 1,600 2,000 – 718,100 29,900 748,000
Changes in equity for
20X6
Dividends – (10,000) – – – – (10,000) – (10,000)
Total comprehensive
income for the year(k) – 53,200 6,400 16,000 (2,400) 1,600 74,800 18,700 93,500
Balance at
31 December 20X6 600,000 161,700 2,400 17,600 (400) 1,600 782,900 48,600 831,500
Changes in equity for
20X7
Issue of share capital 50,000 – – – – – 50,000 – 50,000
Dividends – (15,000) – – – – (15,000) – (15,000)
Total comprehensive
income for the year(l) – 96,600 3,200 (14,400) (400) 800 85,800 21,450 107,250
Transfer to retained
earnings – 200 – – – 200 – – –
Balance at
31 December 20X7 650,000 243,500 5,600 3,200 (800) 2,200 903,700 70,050 973,750

(k) The amount included in retained earnings for 20X6 of 53,200 represents profit attributable to
owners of the parent of 52,400 plus actuarial gains on defined benefit pension plans of 800
(1,333, less tax 333, less non-controlling interests 200).

The amount included in the translation, investments in equity instruments and cash flow hedge
reserves represent other comprehensive income for each component, net of tax and
non-controlling interests, eg other comprehensive income related to investments in equity
instruments for 20X6 of 16,000 is 26,667, less tax 6,667, less non-controlling interests 4,000.

The amount included in the revaluation surplus of 1,600 represents the share of other
comprehensive income of associates of (700) plus gains on property revaluation of 2,300 (3,367, less
tax 667, less non-controlling interests 400). Other comprehensive income of associates relates solely
to gains or losses on property revaluation.

(l) The amount included in retained earnings for 20X7 of 96,600 represents profit attributable to
owners of the parent of 97,000 plus actuarial losses on defined benefit pension plans of 400
(667, less tax 167, less non-controlling interests 100).

The amount included in the translation, investments in equity instruments and cash flow hedge
reserves represent other comprehensive income for each component, net of tax and
non-controlling interests, eg other comprehensive income related to the translation of foreign
operations for 20X7 of 3,200 is 5,334, less tax 1,334, less non-controlling interests 800.

The amount included in the revaluation surplus of 800 represents the share of other comprehensive
income of associates of 400 plus gains on property revaluation of 400 (933, less tax 333, less
non-controlling interests 200). Other comprehensive income of associates relates solely to gains or
losses on property revaluation.

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IG7–IG9 [Deleted]

Part III: Illustrative examples of capital disclosures

(paragraphs 134–136)
An entity that is not a regulated financial institution
IG10 The following example illustrates the application of paragraphs 134 and 135 for
an entity that is not a financial institution and is not subject to an externally
imposed capital requirement. In this example, the entity monitors capital using
a debt-to-adjusted capital ratio. Other entities may use different methods to
monitor capital. The example is also relatively simple. An entity decides, in the
light of its circumstances, how much detail it provides to satisfy the requirements
of paragraphs 134 and 135.

Facts
Group A manufactures and sells cars. Group A includes a finance subsidiary that
provides finance to customers, primarily in the form of leases. Group A is not
subject to any externally imposed capital requirements.
Example disclosure
The Group’s objectives when managing capital are:
• to safeguard the entity’s ability to continue as a going concern, so that it
can continue to provide returns for shareholders and benefits for other
stakeholders, and
• to provide an adequate return to shareholders by pricing products and
services commensurately with the level of risk.
The Group sets the amount of capital in proportion to risk. The Group manages the
capital structure and makes adjustments to it in the light of changes in economic
conditions and the risk characteristics of the underlying assets. In order to
maintain or adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders, issue new shares, or
sell assets to reduce debt.
Consistently with others in the industry, the Group monitors capital on the basis
of the debt-to-adjusted capital ratio. This ratio is calculated as net debt ÷ adjusted
capital. Net debt is calculated as total debt (as shown in the statement of financial
position) less cash and cash equivalents. Adjusted capital comprises all
components of equity (ie share capital, share premium, non-controlling interests,
retained earnings, and revaluation surplus) other than amounts accumulated in
equity relating to cash flow hedges, and includes some forms of subordinated
debt.

continued...

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...continued
During 20X4, the Group’s strategy, which was unchanged from 20X3, was to
maintain the debt-to-adjusted capital ratio at the lower end of the range 6:1 to
7:1, in order to secure access to finance at a reasonable cost by maintaining a BB
credit rating. The debt-to-adjusted capital ratios at 31 December 20X4 and at
31 December 20X3 were as follows:

31 Dec 31 Dec
20X4 20X3
CU CU
million million
Total debt 1,000 1,100
Less: cash and cash equivalents (90) (150)
Net debt 910 950
Total equity 110 105
Add: subordinated debt instruments 38 38
Less: amounts accumulated in equity relating to cash
flow hedges (10) (5)
Adjusted capital 138 138
Debt-to-adjusted capital ratio 6.6 6.9
The decrease in the debt-to-adjusted capital ratio during 20X4 resulted
primarily from the reduction in net debt that occurred on the sale of
subsidiary Z. As a result of this reduction in net debt, improved profitability
and lower levels of managed receivables, the dividend payment was increased
to CU2.8 million for 20X4 (from CU2.5 million for 20X3).

B690 © IASCF
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An entity that has not complied with externally imposed

capital requirements
IG11 The following example illustrates the application of paragraph 135(e) when an
entity has not complied with externally imposed capital requirements during the
period. Other disclosures would be provided to comply with the other
requirements of paragraphs 134 and 135.

Facts
Entity A provides financial services to its customers and is subject to capital
requirements imposed by Regulator B. During the year ended 31 December
20X7, Entity A did not comply with the capital requirements imposed by
Regulator B. In its financial statements for the year ended 31 December 20X7,
Entity A provides the following disclosure relating to its non-compliance.
Example disclosure
Entity A filed its quarterly regulatory capital return for 30 September 20X7 on
20 October 20X7. At that date, Entity A’s regulatory capital was below the
capital requirement imposed by Regulator B by CU1 million. As a result,
Entity A was required to submit a plan to the regulator indicating how it would
increase its regulatory capital to the amount required. Entity A submitted a
plan that entailed selling part of its unquoted equities portfolio with a carrying
amount of CU11.5 million in the fourth quarter of 20X7. In the fourth quarter
of 20X7, Entity A sold its fixed interest investment portfolio for CU12.6 million
and met its regulatory capital requirement.

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Appendix
Amendments to guidance on other IFRSs
The following amendments to guidance on other IFRSs are necessary in order to ensure consistency with
the revised IAS 1. In the amended paragraphs, new text is underlined and deleted text is struck through.

*****

The amendments contained in this appendix when IAS 1 was revised in 2007 have been incorporated into
the guidance on the relevant IFRSs, published in this volume.

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Table of Concordance
This table shows how the contents of IAS 1 (revised 2003 and amended in 2005) and IAS 1
(as revised in 2007) correspond. Paragraphs are treated as corresponding if they broadly
address the same matter even though the guidance may differ.

Superseded IAS 1 Superseded IAS 1 Superseded IAS 1

IAS 1 (revised IAS 1 (revised IAS 1 (revised
paragraph 2007) paragraph 2007) paragraph 2007)
paragraph paragraph paragraph
1 1, 3 42, 43 47, 48 101 None
2 2 44–48 49–53 102 111
3 4,7 49, 50 36,37 103–107 112–116
4 None 51–67 60–76 108–115 117–124
5 5 68 54 116–124 125–133
6 6 68A 54 124A–124C 134–136
7 9 69–73 55–59 125, 126 137, 138
8 10 74–77 77–80 127 139
9, 10 13, 14 None 81 127A None
11 7 78 88 127B None
12 7 79 89 128 140
None 8 80 89 IG1 IG1
None 11, 12 81 82 None IG2
13–22 15–24 82 83 IG2 IG3
23, 24 25, 26 None 84 None IG4
25, 26 27, 28 83–85 85–87 IG3, IG4 IG5, IG6
27, 28 45, 46 None 90–96 None IG7
29–31 29–31 86–94 97–105 None IG8
32–35 32–35 95 107 None IG9
36 38 None 108 IG5, IG6 IG10, IG11
None 39 96, 97 106, 107
37–41 40–44 98 109

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