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IAS 1 Presentation of financial

statements

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IAS 1Presentation 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 isstandardised 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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Objectives

IAS 1 prescribes the basis for presentation of general purpose financial statementsto ensure comparability both with the entitys financial statements of previousperiods 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 eachelement within the financial statements), and

Disclosures

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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.

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Purpose of financial statements

Financial statements are a structured representation of the financialposition 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.

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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 otherexplanatory 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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The Complete Set of Financial Statements

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

IAS 1 requires the individual components of the financial statements to be presentedwith equal prominence in an entitys complete set of financial statements.

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General Features of Financial Statements

IAS 1 requires the individual components of the financial statements to bepresented 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

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Fair presentation and compliance with IFRSs

Financial statements shall present fairly the financial position, financial performance and cashflows of an entity. Fair presentation requires the faithful representation of the effects oftransactions, other events and conditions in accordance with the definitions and recognitioncriteria for assets, liabilities, income and expenses set out in the Framework.

The application of IFRSs, with additional disclosure when necessary, is presumed to result infinancial statements that achieve a fair presentation.

An entity whose financial statements comply with IFRSs shall make an explicit and unreservedstatement of such compliance in the notes. An entity shall not describe financial statementsas complying with IFRSs unless they comply with all the requirements of IFRSs.

An entity cannot rectify inappropriate accounting policies either by disclosure of theaccounting policies used or by notes or explanatory material.

In the extremely rare circumstances in which management concludes that compliance with arequirement in an IFRS would be so misleading that it would conflict with the objective offinancial statements set out in the Framework, the entity shall depart from that requirementin the manner set out in IAS 10 (p. 20) if the relevant regulatory framework requires, orotherwise does not prohibit, such a departure.

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Excerpt from IAS 1

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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 knownas 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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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 flowswhich is based purely on cash flows.

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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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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 toaggregate 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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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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Offsetting

Assets and liabilities should not be offset against each other unless this is

specifically required or permitted by a standard.

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.

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.

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Comparative information

Comparative information for the previous period should bedisclosed for all amounts reported in the financial statementsunless a particular standard does not require such information.

This includes the requirement to show comparative information innarrative disclosures where it is relevant to the full understandingof the explanation.

If adjustments to prior periods have been made as a result of achange in accounting policy or of correction of errors, a statementof financial condition at the beginning of the previous period shouldbe presented.

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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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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 inthe notes

An entity shall disclose the following, either in the statement of financialposition 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, ornotes

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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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, andrepeat 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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As a minimum, the statement of financial position shall include line items

that present the following amounts:

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An entity shall present additional line items, headings and subtotals in thestatement 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 non-

current 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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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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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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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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As a minimum, the statement of comprehensive income shall include lineitems that present the following amounts for the period:

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Information to be presented in the statement of comprehensive income or in thenotes

When items of income or expense are material, an entity shall disclose theirnature and amount separately.

An entity shall present an analysis of expenses recognised in profit or loss using aclassification 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 informationon the nature of expenses, including depreciation and amortisation expense and

employee benefits expense.

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.

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Nature of expense method Revenue

X

Other income X

Changes in inventories of finished goods and work in progressX

Raw materials and consumables used X

Employee benefits expense X

Depreciation and amortisation expense X

Other expenses X

Total expenses (X) Profit before tax X

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Function of expense method

Revenue X Cost of sales (X)

Gross profit X

Other income X

Distribution costs (X)

Administrative expenses (X)

Other expenses (X)

Profit before tax X

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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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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 thestatement 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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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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Structure of the Notes to the Financial Statements

The notes shall:

(a) Present information about the basis of preparation of the financial statements andthe 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 ofcomprehensive income, in the separate income statement (if presented), and in thestatements of changes in equity and of cash flows to any related information in thenotes.

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 othernotes, the judgements, apart from those involving estimations, that management hasmade in the process of applying the entitys accounting policies and that have themost significant effect on the amounts recognised in the financial statements.

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Disclosures:

Capital and Capital Management: An entity shall disclose information that enablesusers 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 domesticmarket for electronic goods is currently not doing well,and therefore many entities in this business areswitching to exports. As per the audited financialstatements 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 andthe current liabilities aggregate to $25 million. Due toexpected favorable changes in the government policiesfor the electronics industry, the entity is projecting

profits in the coming years. Furthermore, theshareholders of the entity have arranged alternativeadditional sources of finance for its expansion plansand to support its working capital needs in the next 12

months. 35

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CASE STUDY (CONTD)

Solution

The two factors that raise doubts about the entitysability 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 (currentliabilities of $25 million) exceeds its current assets (of $20 million)by $5 million.

However, there are two mitigating factors:

i. The shareholdersability to arrange funding for the entitysexpansionand working capital needs.

ii. Projected future profitability due to expected favourable changes ingovernment 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 entityto argue that the going concern assumption is appropriate and that anyother basis of preparation of financial statements would be unreasonableat the moment. However, if matters deteriorate further instead of

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Question 1

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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 andnature.

Statement (1) Statement (2)

A False FalseB False True

C True False

D True True

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Question 2

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According to IAS1 Presentation of financial statements, thenotes within the financial statements contain information in

addition to that presented in which TWO of the following?

A Report on sustainabilityB Chairman's statement

C Statement of financial position

D Statement of financial performance

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Question 3

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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.


A False False

B False True

C True False

D True True

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Question 4

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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.


A False False

B False TrueC True False

D True True

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Question 5

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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 propertyB Number of shares authorised

C Provisions

D Shares in an entity owned by that entity

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Question 6

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According to IAS1 Presentation of financial statements,

which TWO of the following must be included in an

entity's statement of financial position?

ACash 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

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1.C2.C & D

3.A

4.C5.A & C

6.A & D

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Question 7

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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 compliancewith local legislation

B A statement of changes in equity

C Summarised statements of financial position for the

last five yearsD A statement of cash flows

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Question 9

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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 astatement of changes in equity


A False FalseB False True

C True False

D True True

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Question 11

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In which section of the statement of financial position

should employment taxes that are due for settlement in15 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

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The Oakes Company has a loan due for repayment in six

months' time, but Oakes has the option to refinance forrepayment 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 offinancial statements?

(select one answer)

A Current liabilitiesB Current assets

C Non-current liabilities

D Non-current assets

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Answers to Questions 7 - 12

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7. B & D8. D

9. D

1O. D11. A

12. C

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Thank You

ias 1 - ican

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