Conceptual Framework and Consistency of Presentation

Accounting Standards  The preparation and classification of items in the financial

Module 3: IAS 1 – Presentation of Financial Statements statements shall be retained from one period to the next unless
a standard or interpretation prescribes a change or an alternative
presentation and classification would be more appropriate.

Materiality and Aggregation

 Each material class of similar items shall be presented
separately in the financial statements. Items of a dissimilar
nature or function shall be presented separately unless they are immaterial.

Offsetting
 Assets and liabilities, income and expenses, shall not be
offset (offsetted) unless required or permitted by a standard.
Offsetting has the effect of detracting the ability of the users
to understand the transaction and assess the future cash flows.
 Obsolescence allowances on inventories and doubtful debts
allowances on receivables are examples of measuring assets
net of valuation allowances and are not offsetting.

General Features Frequency of Reporting

 Fair presentation and compliance with IFRS  A complete set of financial statements (including comparative
information) should be presented at least annually.
 Going Concern
 If this is not the case then additional disclosures are required.
 Accrual basis of accounting
 Consistency of presentation
Comparative Information
 Materiality and aggregation
 Unless permitted to do otherwise, information must be
 Offsetting
presented for the current and previous reporting period for
 Frequency of reporting
all amounts reported in the financial statements.
 Comparative information
 Comparative information shall be included for narrative and
descriptive information when it is relevant to an
Fair presentation and compliance with IFRS
understanding of the current period’s financial statements.
 Financial statements shall present fairly the financial
 When the presentation or classification of items in the
position, financial performance and cash flow of an entity.
financial statements are amended, comparative amounts
 An entity whose financial statements comply with IFRSs
shall be reclassified unless impracticable to do so. When
shall make an explicit and unreserved statement of such
comparative amounts are reclassified, an entity shall
compliance in the notes. Financial Statements shall not be
disclose the nature, amount and reason for the
described as complying with IFRSs unless it complies with
reclassification. When it is impracticable to reclassify
all the requirements of IFRSs.
comparative amounts, an entity shall disclose the reason for
 Inappropriate accounting policies are not rectified either by
not reclassifying and the nature of adjustment that would
disclosure of the accounting policies used or by notes or
have been made.
explanatory material.
 In the extremely rare circumstances in which management
Statement of Financial Position
concludes that compliance with a requirement in a standard Information to be presented in the statement of financial position:
or interpretation would be so misleading that it would  IAS 1 paragraph 54 provide the minimum line items to be
conflict with the objective of financial statements set out in included on the face of the statement of financial position.
the Framework, the entity shall depart from that requirement  Additional line items, headings subtotals shall be presented
subject to detailed disclosures (explaining the details of the on the face of the statement of financial position if relevant
departure) and only if the relevant regulatory framework to understanding the entity’s financial position. There is no
requires or does not prohibit such departure. prescribed order or format in which items are to be
presented, however the guidelines are as follows:
Going Concern  Line items are included when the size, nature or function
 When preparing financial statements, management shall of an item or aggregation of similar items is such that
make an assessment of an entity’s ability to continue as a separate presentation is relevant to an understanding of
going concern. the entity’s financial position.
 Financial statements shall be prepared on a going concern
 The descriptions used and the ordering of items or
basis unless management either intends to liquidate the
aggregation of similar items may be amended according
entity or to cease trading, or has no realistic alternative but
to the nature of the entity and its transactions, to provide
to do so.
information that is relevant to an understanding of the
 When management is aware, in making its assessment, of
entity’s financial position.
material uncertainties related to events or conditions that
may cast significant doubt upon the entity’s ability to
Current/Non-current Distinction
continue as a going concern, those uncertainties shall be
 An entity shall present current and non-current assets, and
disclosed.
current and non-current liabilities, as separate classifications
 When the financial statements are not prepared on a going
on the face of its statement of financial position unless a
concern basis, the fact shall be disclosed, together with the
presentation based on liquidity provides reliable information
basis on which the financial statements are prepared and the
that is more relevant.
reason why the entity is not regarded as a going concern.
 A presentation of assets and liabilities in increasing or
decreasing order of liquidity provides information that is
Accrual basis of accounting
reliable and relevant for some entities, such as financial
 An entity shall prepare its financial statements, except for
institutions. The current/non-current presentation may not
cash flow information, using the accrual basis of accounting.
be relevant for a financial institution because the entity does
not supply good or services within a clear operating cycle.
Current Assets
An asset shall be classified as current when it satisfies any of the
following criteria:
1. It is expected to be realized in, or is intended for sale or
consumption in, the entity’s normal operating cycle.
2. It is held primarily for the purpose of being traded.
3. It is expected to be realized within 12 months after the
reporting date.
4. It is cash or cash equivalent unless it is restricted from being
exchange or used to settle a liability for at least 12 months
after the reporting date.
All other assets shall be classified as non-current.
Current Liabilities
A liability is classified as current when it satisfies any of the
following criteria:
1. It is expected to be settled in the entity’s normal operating
cycle (i.e. may be more than 12 months
2. It is held primary for the purpose of being traded.
3. It is due to be settled within 12 months after the reporting
date.
4. The entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after the
reporting date.
All other liabilities shall be classified as non-current.
Information to be presented in the Statement of Financial
Position or in the Notes
 Detailed information about each class of share capital or
category of equity for entities without share capital.
 A description of the nature and purpose of each reserve
within equity.
Statement of Profit/Loss & Other Comprehensive Income
An entity presents all items of income and expense recognized
in a period:
a. In a single statement of profit or loss another comprehensive
income; or
b. In two statements:
i. A statement displaying components of profit or loss
(separate statement of profit or loss) and
ii. A second statement beginning with profit or loss and
displaying components of other comprehensive income
(statement of comprehensive income).
Profit or Loss for the Period
 All items of income and expense recognized in a period shall
be included in profit or loss unless an IFRS requires
otherwise.
 An entity shall not present any items of income and expense
as extraordinary items, either on the face of the statement of
profit or loss or in the notes.
Information to be presented in the P/L section of the
Statement of Profit or Loss
 IAS 1 provides a list of items that must be presented in the
profit or loss section or the statement of profit or loss.
 IAS 1 provides examples of statement of profit or loss
formats to be adopted by entities unless an alternative
statement of profit of loss format is more relevant to users
in understanding the entity’s financial performance.
Information to be presented in Other Comprehensive
Income Section
The other comprehensive income section presents line items for
amounts of other comprehensive income in the period, classified
by nature (including share of the other comprehensive income of
associates and joint ventures accounted for using the equity
method) and grouped into those that, in accordance with other IFRSs:
 Will not be reclassified subsequently to profit or loss and
 Will be reclassified subsequently to profit or loss when
specific conditions are met.
Information to be presented either in the Statement of Profit
or Loss and Other Comprehensive Income or in the Notes
 Separate disclosure of the nature and amount of each
material item of income and expenses.
 An analysis of expenses classified either by the nature of
expenses or their function within the entity, whichever
provides information that is reliable and more relevant.
 The amount of income tax relating to each component of
other comprehensive income.
Additional line items, headings and subtotals are presented in the
statement of profit or loss and other comprehensive income if
relevant to understanding the entity’s financial performance.
Statement of Changes in Equity
Information to be presented in the statement of changes in equity:
 Total comprehensive income for the period, showing
separately the total amounts attributable to owners of the
parent and to non-controlling interest.
 For each component of equity, the effects of retrospective
application or retrospective restatement recognized in
accordance with IAS 8.
 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:
 Profit or loss
 Other comprehensive income
- 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.
Information to be presented either in the Statement of
Changes in Equity or in the Notes
 For each component of equity, an analysis of other
comprehensive income by item.
 The amounts of dividends recognized as distribution to
owners during the period, and the related amount of
dividends per share.
Statement of Cash Flows
IAS 7 Cash flow statements sets out requirements for the
presentation of the cash flow statement and related disclosures.
Note Disclosures
The following should be included in the notes to the financial
statements:
 Information about the basis of preparation of financial
statements (e.g. going concern or in liquidation) and the
specific accounting policies used.
 Information required by IFRSs or that is relevant to
understanding the statements that is not presented elsewhere
in the financial report.
 Significant accounting policies, including measurement
bases and relevant policies to understanding the financial
report.
 The judgments, 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 amounts recognized in the financial statements.
 Key assumptions concerning the future and other key
sources of measurement uncertainty that have a significant
risk of causing material adjustments to the carrying amounts
of assets and liabilities in the next twelve months.
 Information that enables users of its financial statements to
evaluate the entity’s objectives, policies and processes for
managing capital.