IAS 1 Presentation of financial statements

IAS 1 Presentation of Financial Statements

PREFACE To ensure that financial statements are prepared to an adequate level it is important that entities are provided with a basic framework for the preparation of their financial statements. Financial statements should provide users with relevant information. To meet this requirement a number of key statements have been identified which allow users to assess the financial performance and position of an entity as well as its liquidity. The broad structure of financial statements is standardised so that this information is presented in a similar manner by all entities, allowing meaningful comparisons to be made across different entities.
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IAS 1 Presentation of Financial Statements

Objectives
IAS 1 prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entitys financial statements of previous periods and with the financial statements of other entities.
It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. This Presentation deals with: The Scope of IAS 1 The purpose of financial statements; What makes up a complete set of financial statements; General Features of Financial Statements; The Structure and Contents of Financial Statements (including the content of each element within the financial statements), and Disclosures

IAS 1 Presentation of Financial Statements

Scope of IAS 1
An entity shall apply this Standard in preparing and presenting general purpose financial statements in accordance with International Financial Reporting Standards (IFRSs).
General purpose financial statements are statements that have been prepared for use by those who are not in a position to require an entity to prepare reports tailored to their own information needs. Reports prepared at the request of an entitys management or bankers are not general purpose financial statements, because they are prepared specifically to meet the needs of management/ bankers.

IAS 1 Presentation of Financial Statements Purpose of financial statements

Financial statements are a structured representation of the financial position and financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the managements stewardship of the resources entrusted to it. To meet this objective, financial statements provide information about an entitys:
(a) assets; (b) liabilities; (c) equity; (d) income and expenses, including gains and losses;

(e) contributions by and distributions to owners in their capacity as owners; and (f) cash flows.

IAS 1 Presentation of Financial Statements

Complete set of financial statements
A complete set of financial statements comprises: A statement of financial position as at the end of the period; A statement of comprehensive income for the period; A statement of changes in equity for the period; A statement of cash flows for the period; Notes, comprising a summary of significant accounting policies and other explanatory information; and A statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. Technical Notes: 1. An entity may use titles for the statements other than those used in this Standard. 2. An entity shall present with equal prominence all of the financial statements in a complete set of financial statements.
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IAS 1 Presentation of Financial Statements

The Complete Set of Financial Statements
As well as setting out what makes up a complete set of financial statements, as shown below, IAS 1 also highlights items that have been identified as being of significant importance and therefore should be disclosed in a particular statement.

IAS 1 requires the individual components of the financial statements to be presented with equal prominence in an entitys complete set of financial statements.
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IAS 1 Presentation of Financial Statements

General Features of Financial Statements
IAS 1 requires the individual components of the financial statements to be presented with equal prominence in an entitys complete set of financial statements. Fair presentation and compliance with IFRS Going concern Accrual Concept Consistency of presentation Materiality and Aggregation Frequency of Reporting Offsetting of Assets and Liabilities Comparative information Additional Disclosures

IAS 1 Presentation of Financial Statements

Fair presentation and compliance with IFRSs
Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework. The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. An entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with IFRSs unless they comply with all the requirements of IFRSs. An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material. In the extremely rare circumstances in which management concludes that compliance with a requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, the entity shall depart from that requirement in the manner set out in IAS 10 (p. 20) if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.

IAS 1 Presentation of Financial Statements

Excerpt from IAS 1

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IAS 1 Presentation of Financial Statements

Going concern
When preparing a set of financial statements management should assume, unless there are specific reasons to believe otherwise, that the business will continue to operate for the foreseeable future. This is known as the going concern concept. This is particularly relevant when management make estimates about the expected outcome of events, such as the recoverability of trade receivables and the useful lives of non-current assets.

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IAS 1 Presentation of Financial Statements

Accrual concept
Financial statements should be prepared by applying the accrual concept.
In its simplest form the accrual concept means that assets are recognised when they are receivable rather than when physically received, and liabilities are recognised when they are payable rather than when actually paid. This is not relevant for the preparation of the statement of cash flows which is based purely on cash flows.

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IAS 1 Presentation of Financial Statements

Consistency of presentation
To aid comparability of financial statements year on year and across different entities it is important that a consistent presentation and classification of items is followed. The presentation should only be changed where a new or revised standard requires such a change or where there has been a significant change in the nature of the entitys operations and a new presentation would therefore be more appropriate.

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IAS 1 Presentation of Financial Statements

Materiality and aggregation
IAS 1 requires that items that are of importance to the users of the financial statements in making economic decisions should be separately identified within the financial statements.
Such items are defined as being material. In assessing whether items are considered to be material, the entity should consider both the nature and size of the item.
For example, the purchase of large tangible assets may be common for a particular entity, and therefore it would generally be appropriate to aggregate such items together as the purchase of plant. However, a fairly small transaction with a director may be considered as important information for users of the financial statements.
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IAS 1 Presentation of Financial Statements

Frequency of reporting
An entity shall present a complete set of financial statements (including comparative information) at least annually.

When an entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, an entity shall disclose, in addition to the period covered by the financial statements:

(a) the reason for using a longer or shorter period, and (b) the fact that amounts presented in the financial statements are not entirely comparable.

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IAS 1 Presentation of Financial Statements

Offsetting
Assets and liabilities should not be offset against each other unless this is specifically required or permitted by a standard.
IFRS only allows offsetting, when: 1. There is a legally enforceable right to offset, and 2. It is expected that the asset is held for the being realized for the settlement of the liability.

This is because the offsetting or netting of items is assumed to make it more difficult for the users of financial statements to understand past transactions and assess future cash flows.

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IAS 1 Presentation of Financial Statements

Comparative information Comparative information for the previous period should be disclosed for all amounts reported in the financial statements unless a particular standard does not require such information.

This includes the requirement to show comparative information in narrative disclosures where it is relevant to the full understanding of the explanation.
If adjustments to prior periods have been made as a result of a change in accounting policy or of correction of errors, a statement of financial condition at the beginning of the previous period should be presented.
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IAS 1 Presentation of Financial Statements

Additional disclosures
A number of additional disclosures are required by IAS 1 to ensure that users of the financial statements understand the basis on which the information presented in the financial statements has been prepared.
These additional disclosures which should be presented include: the measurement basis used in the preparation of the financial statements, judgements that have been made in applying an entitys accounting policies, and assumptions that an entity has made over the uncertainty of making estimations.

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IAS 1 Presentation of Financial Statements

The Structure and Contents of Financial Statements
This include: Identification of the financial statements Information to be presented in the statement of financial position Information to be presented either in the statement of financial position or in the notes An entity shall disclose the following, either in the statement of financial position or the statement of changes in equity, or in the notes: Information to be presented in the statement of comprehensive income Information to be presented in the statement of comprehensive income, or notes Information to be presented in the statement of changes in equity Information to be presented in the statement of changes in equity, or notes Information to be presented in the statement of cash flows Information to be disclosed and presented in Notes.
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IAS 1 Presentation of Financial Statements

Identification of the financial statements
An entity shall clearly identify the financial statements and distinguish them from other information in the same published document.
In addition, an entity shall display the following information prominently, and repeat it when necessary for the information presented to be understandable: (a) the name of the reporting entity or other means of identification, and any change in that information from the end of the preceding reporting period; (b) whether the financial statements are of an individual entity or a group of entities; (c) the date of the end of the reporting period or the period covered by the set of financial statements or notes; (d) the presentation currency, as defined in IAS 21; and (e) the level of
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IAS 1 Presentation of Financial Statements

Information to be presented in the statement of financial position As a minimum, the statement of financial position shall include line items that present the following amounts:

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IAS 1 Presentation of Financial Statements

Information to be presented in the statement of financial position
An entity shall present additional line items, headings and subtotals in the statement of financial position when such presentation is relevant to an understanding of the entitys financial position. When an entity presents current and non-current assets, and current and noncurrent liabilities, as separate classifications in its statement of financial position, it shall not classify deferred tax assets (liabilities) as current assets (liabilities). Current/non-current distinction
An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position, except when a presentation based on liquidity provides information that is reliable and more relevant. When that exception applies, an entity shall present all assets and liabilities in order of liquidity. Whichever method of presentation is adopted, an entity shall disclose the amount expected to be recovered or settled after more than twelve months for each asset and liability line item that combines amounts expected to be recovered or settled: (a) no more than twelve months after the reporting period, and (b) more than twelve months after the reporting period.
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IAS 1 Presentation of Financial Statements

Information to be presented either in the statement of financial position or in the notes An entity shall disclose, either in the statement of financial position or in the notes, further sub-classifications of the line items presented, classified in a manner appropriate to the entitys operations.

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IAS 1 Presentation of Financial Statements

An entity shall disclose the following, either in the statement of financial position or the statement of changes in equity, or in the notes:

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IAS 1 Presentation of Financial Statements

Information to be presented in the statement of comprehensive income An entity shall present all items of income and expense recognised in a period: (a) in a single statement of profit or loss and other comprehensive income, or (b) in two statements: a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of profit or loss and other comprehensive income).

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IAS 1 Presentation of Financial Statements

Information to be presented in the statement of comprehensive income As a minimum, the statement of comprehensive income shall include line items that present the following amounts for the period:

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IAS 1 Presentation of Financial Statements

Information to be presented in the statement of comprehensive income or in the notes When items of income or expense are material, an entity shall disclose their nature and amount separately.
Circumstances that would give rise to the separate disclosure of items of income and expense include: (a) write-downs of inventories to net realisable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs; (b) restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring; (c) disposals of items of property, plant and equipment; (d) disposals of investments; (e) discontinued operations; (f) litigation settlements; and (g) other reversals of provisions.

An entity shall present an analysis of expenses recognised in profit or loss using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant. An entity classifying expenses by function shall disclose additional information on the nature of expenses, including depreciation and amortisation expense and employee benefits expense. 27

Nature of expense method

Revenue Other income
Changes in inventories of finished goods and work in progressX

X X X

Raw materials and consumables used

Employee benefits expense

Depreciation and amortisation expense Other expenses Total expenses Profit before tax

X
X X

(X)
X

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Function of expense method

Revenue Cost of sales Gross profit Other income Distribution costs Administrative expenses Other expenses Profit before tax X (X) X X (X) (X) (X) X
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IAS 1 Presentation of Financial Statements

Information to be presented in the statement of changes in equity
An entity shall present a statement of changes in equity, which should includes the following information:
An entity shall present a statement of changes in equity as required by paragraph 10. The statement of changes in equity includes the following information: (a) total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests; (b) for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8; and (c.) for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from: (i) profit or loss; (ii) other comprehensive income; and (iii) transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.
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IAS 1 Presentation of Financial Statements

Information to be presented in the statement of changes in equity or in the notes

For each component of equity an entity shall present, either in the statement of changes in equity or in the notes, an analysis of other comprehensive income by item. An entity shall present, either in the statement of changes in equity or in the notes, the amount of dividends recognised as distributions to owners during the period, and the related amount of dividends per share.

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IAS 1 Presentation of Financial Statements Statement of cash flows

Cash flow information provides users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows. IAS 7 sets out requirements for the presentation and disclosure of cash flow information.
Example of disclosure from IAS 7:
1. An entity shall disclose the components of cash and cash equivalents and shall present a reconciliation of the amounts in its statement of cash flows with the equivalent items reported in the statement of financial position. 2. An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the group.
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IAS 1 Presentation of Financial Statements

Structure of the Notes to the Financial Statements
The notes shall: (a) Present information about the basis of preparation of the financial statements and the specific accounting policies used (b) Disclose the information required by IFRSs that is not presented elsewhere in the financial statements; and (c) Provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them. An entity shall, as far as practicable, present notes in a systematic manner. An entity shall cross-reference each item in the statements of financial position and of comprehensive income, in the separate income statement (if presented), and in the statements of changes in equity and of cash flows to any related information in the notes. Disclosure of accounting policies: An entity shall disclose in the summary of significant accounting policies: (a) the measurement basis (or bases) used in preparing the financial statements, and (b) the other accounting policies An entity shall disclose, in the summary of significant accounting policies or other notes, the judgements, apart from those involving estimations, that management has made in the process of applying the entitys accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
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IAS 1 Presentation of Financial Statements

Disclosures:
Capital and Capital Management: An entity shall disclose information that enables users of its financial statements to evaluate the entitys objectives, policies and processes for managing capital.

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CASE STUDY
XYZ Inc. is a manufacturer of televisions. The domestic market for electronic goods is currently not doing well, and therefore many entities in this business are switching to exports. As per the audited financial statements for the year ended December 31, 20XX, the entity had net losses of $2 million. At December 31, 20XX, its current assets aggregate to $20 million and the current liabilities aggregate to $25 million. Due to expected favorable changes in the government policies for the electronics industry, the entity is projecting profits in the coming years. Furthermore, the shareholders of the entity have arranged alternative additional sources of finance for its expansion plans and to support its working capital needs in the next 12 35 months.

CASE STUDY (CONTD)

Solution The two factors that raise doubts about the entitys ability to continue as a going concern are: i. The net loss for the year of $2 million.. ii. At the balance sheet date, the working capital deficiency (current liabilities of $25 million) exceeds its current assets (of $20 million) by $5 million. However, there are two mitigating factors: i. The shareholders ability to arrange funding for the entitys expansion and working capital needs. ii. Projected future profitability due to expected favourable changes in government policies for the industry the entity is operating within. Note: Based on these sets of factorsboth negative and positive (mitigating) factorsit may be possible for the management of the entity to argue that the going concern assumption is appropriate and that any other basis of preparation of financial statements would be unreasonable 36 at the moment. However, if matters deteriorate further instead of

Question 1
Are the following statements in relation to materiality true or false, according to IAS1 Presentation of financial statements? (1) Materiality of items depends on their individual or collective influence on the economic decisions of users. (2) Materiality of an item depends on its absolute size and nature. Statement (1) Statement (2) False False False True True False True True
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A B C D

Question 2
According to IAS1 Presentation of financial statements, the notes within the financial statements contain information in addition to that presented in which TWO of the following? A Report on sustainability B Chairman's statement C Statement of financial position D Statement of financial performance

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Question 3
Are the following statements true or false, according to IAS1 Presentation of financial statements? (1) Dividends paid should be recognised in the statement of comprehensive income. (2) A loss on disposal of assets should be recognised in the statement of changes in equity. Statement (1) Statement (2) A False False B False True C True False D True True

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Question 4
Are the following statements true or false, according to IAS1 Presentation of financial statements? (1) Provisions should be recognised in the statement of financial position. (2) A revaluation surplus on non-current assets should be recognised in the statement of changes in equity. Statement (1) Statement (2) A False False B False True C True False D True True
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Question 5
According to IAS1 Presentation of financial statements, which TWO of the following must be included in an entity's statement of financial position? A Investment property B Number of shares authorised C Provisions D Shares in an entity owned by that entity

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Question 6
According to IAS1 Presentation of financial statements, which TWO of the following must be included in an entity's statement of financial position? A Cash and cash equivalents B Property, plant and equipment analysed by class C Share capital and reserves analysed by class D Deferred tax

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Answers to Questions 1-6

1.C 2.C & D 3.A 4.C 5.A & C 6.A & D

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Question 7
Which TWO of the following are included in a complete set of financial statements, according to IAS1 Presentation of financial statements? A A statement by the board of directors of compliance with local legislation B A statement of changes in equity C Summarised statements of financial position for the last five years D A statement of cash flows

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Question 8
Are the following statements true or false, according to IAS1 Presentation of financial statements? (1) Biological assets should be shown in the statement of financial position. (2) The number of shares authorised for issue should be shown in the statement of financial position or the statement of changes in equity or in the notes. Statement (1) Statement (2) A False False B False True C True False D True True
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Are the following statements true or false, according to IAS1 Presentation of financial statements? (1) An entity presenting a single statement of comprehensive income should present a statement of changes in equity (2) An entity presenting a separate income statement and a statement of comprehensive income should present a statement of changes in equity Statement (1) Statement (2) False False False True True False True True
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Question 9

A B C D

Question 10
In which section of the statement of financial position should cash that is restricted to the settlement of a liability due 18 months after the reporting period be presented, according to IAS1 Presentation of financial statements? (select one answer) A Current assets B Equity C Non-current liabilities D Non-current assets
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Question 11
In which section of the statement of financial position should employment taxes that are due for settlement in 15 months' time be presented, according to IAS1 Presentation of financial statements? (select one answer) A Current liabilities B Current assets C Non-current liabilities D Non-current assets

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Question 12
The Oakes Company has a loan due for repayment in six months' time, but Oakes has the option to refinance for repayment two years later. Oakes plans to refinance this loan. In which section of its statement of financial position should this loan be presented, according to IAS1 Presentation of financial statements? (select one answer) A Current liabilities B Current assets C Non-current liabilities D Non-current assets
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Answers to Questions 7 - 12
7. B & D 8. D 9. D 1O. D 11. A 12. C

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Thank You

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