What is IFRS?

IFRS stands for international financial reporting standards. It’s a set

of accounting rules and standards that determine how accounting
events should be reported in your business’s financial statements.
Issued by the International Accounting Standards Board (IASB), IFRS
aims to make financial statements consistent, comparable, and
transparent across the world.

The United States is one notable country that doesn’t prescribe to

IFRS, instead following a system called GAAP.

What are the benefits of IFRS?

Today, cross-border transactions are commonplace, with vast numbers of
businesses seeking investment opportunities across the globe. In the
past, this sort of internationalism was hampered by different countries
maintaining different accounting standards, adding cost, complexity,
and risk to business deals. IFRS eliminates that problem by ensuring
that different countries adopt the same, globally applicable set of
accounting standards.

Explain international financial reporting

standards
 IFRS specifies how businesses need to maintain and report their
accounts. Created to establish a common accounting language, the
goal of the international financial reporting standards is to make
financial statements coherent and consistent across different
industries and countries. IFRS covers a broad range of topics,
including revenue recognition, income taxes, inventories, fixed assets,
business combinations, foreign exchange rates, and the presentation
of financial statements.

There are many different IFRS standards that you need to pay attention

to. Here are a couple of areas where IFRS provides comprehensive
rules:
 1. Statement of Financial Position – More commonly referred to
as a balance sheet, IFRS details the different components and how it
should be reported.
 2. Statement of Comprehensive Income – This can be presented
as a single statement or a profit and loss statement and a statement of
other income.
 3. Statement of Changes in Equity – Sometimes referred to as a
statement of retained earnings, this should document your business’s
change in profits over the course of a given financial period.
 4. Statement of Cash Flow – This document should provide a
summary of your business’s financial transactions over the given
period, separating your cash flow into Financing, Operations, and
Investing.

What is IFRS compliance?

International financial reporting standards are used in a wide range of
countries and jurisdictions. You can see the IFRS website to work out
exactly where IFRS is used. If you aren’t compliant with IFRS
standards, it may be more difficult to receive investment or business
credit. However, by taking a proactive approach to achieving
compliance, you can set your business up for success.

What is the difference between GAAP

and IFRS?
The standards that are used to govern the rules of financial reporting
can vary across countries. In the United States, these standards are
grouped under GAAP (generally accepted accounting principles).
However, in over 100 countries across the world, accounting
standards are organised within the IFRS framework. So, what is the
difference between GAAP and IFRS? On the whole, the difference
comes down to methodology. IFRS is principles-based, whereas GAAP
is rules-based. Practically, this means that IFRS goes into much less
detail than gap, leaving more room for interpretation. 
For US-based businesses, GAAP is still the standard to adhere to.
However, there is a chance that the U.S. Securities and Exchange
Commission (SEC) will change to IFRS at some point in the future.
The global adoption of IFRS may reduce the costs of comparing
international businesses, while it would also cut down on the time and
expense of duplicating accounting work.
IAS 1 — Presentation of Financial Statements

Overview
IAS 1 Presentation of Financial Statements sets out the overall requirements for financial
statements, including how they should be structured, the minimum requirements for their content
and overriding concepts such as going concern, the accrual basis of accounting and the
current/non-current distinction. The standard requires a complete set of financial statements to
comprise a statement of financial position, a statement of profit or loss and other comprehensive
income, a statement of changes in equity and a statement of cash flows.
IAS 1 was reissued in September 2007 and applies to annual periods beginning on or after 1
January 2009.
History of IAS 1
Date Development Comments

March 1974 Exposure Draft E1 Disclosure of

Accounting Policies

January 1975 IAS 1 Disclosure of Accounting Operative for periods

Policies issued beginning on or after 1
January 1975

June 1975 Exposure Draft E5 Information to Be

Disclosed in Financial
Statements published

October 1976 IAS 5 Information to Be Disclosed in Operative for periods

Financial Statements issued beginning on or after 1
January 1975

July 1978 Exposure Draft E14 Current Assets and

Current Liabilities published

November 1979 IAS 13 Presentation of Current Assets Operative for periods

and Current Liabilities issued beginning on or after 1
January 1981

1994 IAS 1, IAS 5, and IAS 13 reformatted

July 1996 Exposure Draft E53 Presentation of

Financial Statements published

August 1997 IAS 1 Presentation of Financial Operative for periods

Statements (1997) issued beginning on or after 1
July 1998
(Supersedes IAS 1 (1975), IAS 5, and
IAS 13 (1979))

18 December 2003 IAS 1 Presentation of Financial Effective for annual

Statements (2003) issued periods beginning on
or after 1 January
2005
18 August 2005 Amended by Amendment to IAS 1 — Effective for annual
Capital Disclosures periods beginning on
or after 1 January
2007

16 March 2006 Exposure Draft Proposed Amendments Comment deadline 17

to IAS 1 – A Revised July 2006
Presentation published

22 June 2006 Exposure Draft Financial Instruments Comment deadline 23

Puttable at Fair Value and Obligations October 2006
Arising on Liquidation published

6 September 2007 IAS 1 Presentation of Financial Effective for annual

Statements (2007) issued periods beginning on
or after 1 January
2009

14 February 2008 Amended by Puttable Financial Effective for annual

Instruments and Obligations Arising on reporting periods
Liquidation beginning on or after 1
January 2009

22 May 2008 Amended by Annual Improvements to Effective for annual

IFRSs 2007 (classification of reporting periods
derivatives as current or non-current) beginning on or after 1
January 2009

16 April 2009 Amended by Improvements to IFRSs Effective for annual

2009 (classification of liabilities as periods beginning on
current) or after 1 January
2010

6 May 2010 Amended by Improvements to IFRSs Effective for annual

2010 (clarification of statement of periods beginning on
changes in equity) or after 1 January
2011

27 May 2010 Exposure Draft Comment deadline 30

ED/2010/5 Presentation of Items of
 Other Comprehensive Income published September 2010

16 June 2011 Amended by Presentation of Items of Effective for annual

Other Comprehensive Income periods beginning on
or after 1 July 2012

17 May 2012 Amended by Annual Improvements Effective for annual

2009-2011 Cycle (comparative periods beginning on
information) or after 1 January
2013

18 December 2014 Amended by Disclosure Initiative Effective for annual

(Amendments to IAS 1) (project history) periods beginning on
or after 1 January
2016

31 October 2018 Amended by Definition of Material Effective for annual

(Amendments to IAS 1 and IAS 8) periods beginning on
or after 1 January
2020

23 January 2020 Amended by Classification of Effective for annual

Liabilities as Current or Non-current periods beginning on
(Amendments to IAS 1) or after 1 January
2022

15 July 2020 IASB defers effective date The new effective ate
of Classification of Liabilities as of the January 2020
Current or Non-current (Amendments amendments is now 1
to IAS 1) to 1 January 2022 January 2023

Related Interpretations
 IAS 1 (2003) superseded SIC-18 Consistency - Alternative Methods
 
 IFRIC 17 Distributions of Non-cash Assets to Owners
 
 SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease
 
 SIC-29 Disclosure - Service Concession Arrangements
Amendments under consideration
 Primary financial statements
 
 Disclosure initiative — Accounting policies
Summary of IAS 1
Objective of IAS 1
The objective of IAS 1 (2007) is to prescribe the basis for presentation of general purpose
financial statements, to ensure comparability both with the entity's financial statements of
previous periods and with the financial statements of other entities. IAS 1 sets out the overall
requirements for the presentation of financial statements, guidelines for their structure and
minimum requirements for their content. [IAS 1.1] Standards for recognising, measuring, and
disclosing specific transactions are addressed in other Standards and Interpretations. [IAS 1.3]
Scope
IAS 1 applies to all general purpose financial statements that are prepared and presented in
accordance with International Financial Reporting Standards (IFRSs). [IAS 1.2]
General purpose financial statements are those intended to serve users who are not in a position
to require financial reports tailored to their particular information needs. [IAS 1.7]
Objective of financial statements
The objective of general purpose 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. To meet that objective, financial statements
provide information about an entity's: [IAS 1.9]
 assets
 
 liabilities
 
 equity
 
 income and expenses, including gains and losses
 
 contributions by and distributions to owners (in their capacity as owners)
 
 cash flows.
That information, along with other information in the notes, assists users of financial statements
in predicting the entity's future cash flows and, in particular, their timing and certainty.
Components of financial statements
A complete set of financial statements includes: [IAS 1.10]
 a statement of financial position (balance sheet) at the end of the period
 
 a statement of profit or loss and other comprehensive income for the period (presented as
a single statement, or by presenting the profit or loss section in a separate statement of
profit or loss, immediately followed by a statement presenting comprehensive income
beginning with profit or loss)
 
 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
notes
 
 comparative information prescribed by the standard.
An entity may use titles for the statements other than those stated above.  All financial statements
are required to be presented with equal prominence. [IAS 1.10] 
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, it
must also present a statement of financial position (balance sheet) as at the beginning of the
earliest comparative period.
Reports that are presented outside of the financial statements – including financial reviews by
management, environmental reports, and value added statements – are outside the scope of
IFRSs. [IAS 1.14]
Fair presentation and compliance with IFRSs
The financial statements must "present fairly" the financial position, financial performance and
cash flows of an entity. Fair presentation requires the faithful representation of the effects of
transactions, 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. [IAS 1.15]
IAS 1 requires an entity whose financial statements comply with IFRSs to make an explicit and
unreserved statement of such compliance in the notes. Financial statements cannot be described
as complying with IFRSs unless they comply with all the requirements of IFRSs (which includes
International Financial Reporting Standards, International Accounting Standards, IFRIC
Interpretations and SIC Interpretations). [IAS 1.16]
Inappropriate accounting policies are not rectified either by disclosure of the accounting policies
used or by notes or explanatory material. [IAS 1.18]
IAS 1 acknowledges that, in extremely rare circumstances, management may conclude that
compliance with an IFRS requirement would be so misleading that it would conflict with the
objective of financial statements set out in the Framework. In such a case, the entity is required
to depart from the IFRS requirement, with detailed disclosure of the nature, reasons, and impact
of the departure. [IAS 1.19-21]
Going concern
The Conceptual Framework notes that financial statements are normally prepared assuming the
entity is a going concern and will continue in operation for the foreseeable future. [Conceptual
Framework, paragraph 4.1]
IAS 1 requires management to make an assessment of an entity's ability to continue as a going
concern.  If management has significant concerns about the entity's ability to continue as a going
concern, the uncertainties must be disclosed. If management concludes that the entity is not a
going concern, the financial statements should not be prepared on a going concern basis, in
which case IAS 1 requires a series of disclosures. [IAS 1.25]
Accrual basis of accounting
IAS 1 requires that an entity prepare its financial statements, except for cash flow information,
using the accrual basis of accounting. [IAS 1.27]
Consistency of presentation
The presentation and classification of items in the financial statements shall be retained from one
period to the next unless a change is justified either by a change in circumstances or a
requirement of a new IFRS. [IAS 1.45]
Materiality and aggregation
Information is material if omitting, misstating or obscuring it could reasonably be expected to
influence decisions that the primary users of general purpose financial statements make on the
basis of those financial statements, which provide financial information about a specific
reporting entity. [IAS 1.7]*
Each material class of similar items must be presented separately in the financial statements.
Dissimilar items may be aggregated only if they are individually immaterial. [IAS 1.29]
However, information should not be obscured by aggregating or by providing immaterial
information, materiality considerations apply to the all parts of the financial statements, and even
when a standard requires a specific disclosure, materiality considerations do apply. [IAS 1.30A-
31]
* Clarified by Definition of Material (Amendments to IAS 1 and IAS 8), effective 1 January 2020.
Offsetting
Assets and liabilities, and income and expenses, may not be offset unless required or permitted
by an IFRS. [IAS 1.32]
Comparative information
IAS 1 requires that comparative information to be disclosed in respect of the previous period for
all amounts reported in the financial statements, both on the face of the financial statements and
in the notes, unless another Standard requires otherwise. Comparative information is provided
for narrative and descriptive where it is relevant to understanding the financial statements of the
current period. [IAS 1.38]
An entity is required to present at least two of each of the following primary financial statements:
[IAS 1.38A]
 statement of financial position*
 
 statement of profit or loss and other comprehensive income
 
 separate statements of profit or loss (where presented)
 
 statement of cash flows
 
 statement of changes in equity
 
  related notes for each of the above items.
* A third statement of financial position is required to be presented if the entity retrospectively
applies an accounting policy, restates items, or reclassifies items, and those adjustments had a
material effect on the information in the statement of financial position at the beginning of the
comparative period. [IAS 1.40A]
Where comparative amounts are changed or reclassified, various disclosures are required. [IAS
1.41]
Structure and content of financial statements in general
IAS 1 requires an entity to clearly identify: [IAS 1.49-51]
 the financial statements, which must be distinguished from other information in a
published document
 
 each financial statement and the notes to the financial statements.
In addition, the following information must be displayed prominently, and repeated as necessary:
[IAS 1.51]

 the name of the reporting entity and any change in the name
 
 whether the financial statements are a group of entities or an individual entity
 
 information about the reporting period
 
 the presentation currency (as defined by IAS 21 The Effects of Changes in Foreign
Exchange Rates)
 
 the level of rounding used (e.g. thousands, millions).
Reporting period
There is a presumption that financial statements will be prepared at least annually. If the annual
reporting period changes and financial statements are prepared for a different period, the entity
must disclose the reason for the change and state that amounts are not entirely comparable. [IAS
1.36]
Statement of financial position (balance sheet)
Current and non-current classification
An entity must normally present a classified statement of financial position, separating current
and non-current assets and liabilities, unless presentation based on liquidity provides information
that is reliable. [IAS 1.60] In either case, if an asset (liability) category combines amounts that
will be received (settled) after 12 months with assets (liabilities) that will be received (settled)
within 12 months, note disclosure is required that separates the longer-term amounts from the
12-month amounts. [IAS 1.61]
Current assets are assets that are: [IAS 1.66]
 expected to be realised in the entity's normal operating cycle
 
 held primarily for the purpose of trading
 
 expected to be realised within 12 months after the reporting period
 
 cash and cash equivalents (unless restricted).
All other assets are non-current. [IAS 1.66]
Current liabilities are those: [IAS 1.69]
 expected to be settled within the entity's normal operating cycle
 
 held for purpose of trading
 
 due to be settled within 12 months
 
 for which the entity does not have the right at the end of the reporting period to defer
settlement beyond 12 months.
Other liabilities are non-current.

When a long-term debt is expected to be refinanced under an existing loan facility, and the entity
has the discretion to do so, the debt is classified as non-current, even if the liability would
otherwise be due within 12 months. [IAS 1.73]
If a liability has become payable on demand because an entity has breached an undertaking
under a long-term loan agreement on or before the reporting date, the liability is current, even if
the lender has agreed, after the reporting date and before the authorisation of the financial
statements for issue, not to demand payment as a consequence of the breach. [IAS 1.74]
However, the liability is classified as non-current if the lender agreed by the reporting date to
provide a period of grace ending at least 12 months after the end of the reporting period, within
which the entity can rectify the breach and during which the lender cannot demand immediate
repayment. [IAS 1.75]
Settlement by the issue of equity instruments does not impact classification. [IAS 1.76B]
Line items
The line items to be included on the face of the statement of financial position are: [IAS 1.54]
(a) property, plant and equipment
(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (h), and (i))
(e) investments accounted for using the equity method
(f) biological assets
(g) inventories
(h) trade and other receivables
(i) cash and cash equivalents
(j) assets held for sale
(k) trade and other payables
(l) provisions
(m
) financial liabilities (excluding amounts shown under (k) and (l))
(n) current tax liabilities and current tax assets, as defined in IAS 12
(o) deferred tax liabilities and deferred tax assets, as defined in IAS 12
(p) liabilities included in disposal groups
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent.
Additional line items, headings and subtotals may be needed to fairly present the entity's
financial position. [IAS 1.55] 
When an entity presents subtotals, those subtotals shall be comprised of line items made up of
amounts recognised and measured in accordance with IFRS; be presented and labelled in a clear
and understandable manner; be consistent from period to period; and not be displayed with more
prominence than the required subtotals and totals. [IAS 1.55A]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
Further sub-classifications of line items presented are made in the statement or in the notes, for
example: [IAS 1.77-78]:
 classes of property, plant and equipment
 
 disaggregation of receivables
 
 disaggregation of inventories in accordance with IAS 2 Inventories
 
 disaggregation of provisions into employee benefits and other items
 
 classes of equity and reserves.
Format of statement
IAS 1 does not prescribe the format of the statement of financial position. Assets can be
presented current then non-current, or vice versa, and liabilities and equity can be presented
current then non-current then equity, or vice versa. A net asset presentation (assets minus
liabilities) is allowed. The long-term financing approach used in UK and elsewhere – fixed assets
+ current assets - short term payables = long-term debt plus equity – is also acceptable.
Share capital and reserves
Regarding issued share capital and reserves, the following disclosures are required: [IAS 1.79]
 numbers of shares authorised, issued and fully paid, and issued but not fully paid
 
 par value (or that shares do not have a par value)
 
 a reconciliation of the number of shares outstanding at the beginning and the end of the
period
 
  description of rights, preferences, and restrictions
 
 treasury shares, including shares held by subsidiaries and associates
 
 shares reserved for issuance under options and contracts
 
 a description of the nature and purpose of each reserve within equity.
Additional disclosures are required in respect of entities without share capital and where an
entity has reclassified puttable financial instruments.  [IAS 1.80-80A]
Statement of profit or loss and other comprehensive income
Concepts of profit or loss and comprehensive income
Profit or loss is defined as "the total of income less expenses, excluding the components of other
comprehensive income".  Other comprehensive income is defined as comprising "items of
income and expense (including reclassification adjustments) that are not recognised in profit or
loss as required or permitted by other IFRSs".  Total comprehensive income is defined as "the
change in equity during a period resulting from transactions and other events, other than those
changes resulting from transactions with owners in their capacity as owners". [IAS 1.7]

income  =  Profit  +  Other

or loss comprehensive income

All items of income and expense recognised in a period must be included in profit or loss unless
a Standard or an Interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit that
some components to be excluded from profit or loss and instead to be included in other
comprehensive income.

Examples of items recognised outside of profit or loss

 Changes in revaluation surplus where the revaluation method is used

under IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
 
 Remeasurements of a net defined benefit liability or asset recognised in accordance
 with IAS 19 Employee Benefits (2011)
 
 Exchange differences from translating functional currencies into presentation
currency in accordance with IAS 21 The Effects of Changes in Foreign Exchange
Rates
 
 Gains and losses on remeasuring available-for-sale financial assets in accordance
with IAS 39 Financial Instruments: Recognition and Measurement
 
 The effective portion of gains and losses on hedging instruments in a cash flow
hedge under IAS 39 or IFRS 9 Financial Instruments
 
 Gains and losses on remeasuring an investment in equity instruments where the
entity has elected to present them in other comprehensive income in accordance
with IFRS 9
 
 The effects of changes in the credit risk of a financial liability designated as at fair
value through profit and loss under IFRS 9.

In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires

the correction of errors and the effect of changes in accounting policies to be recognised outside
profit or loss for the current period. [IAS 1.89]
Choice in presentation and basic requirements
An entity has a choice of presenting:
 a single statement of profit or loss and other comprehensive income, with profit or loss
and other comprehensive income presented in two sections, or
 
 two statements:
o a separate statement of profit or loss
 
o a statement of comprehensive income, immediately following the statement of
profit or loss and beginning with profit or loss [IAS 1.10A]
The statement(s) must present: [IAS 1.81A]
 profit or loss
 
 total other comprehensive income
 
 comprehensive income for the period
 
 an allocation of profit or loss and comprehensive income for the period between non-
controlling interests and owners of the parent.
Profit or loss section or statement
The following minimum line items must be presented in the profit or loss section (or separate
statement of profit or loss, if presented): [IAS 1.82-82A]
 revenue
 gains and losses from the derecognition of financial assets measured at amortised cost
 finance costs
 share of the profit or loss of associates and joint ventures accounted for using the equity
method
 certain gains or losses associated with the reclassification of financial assets
 tax expense
 a single amount for the total of discontinued items
Expenses recognised in profit or loss should be analysed either by nature (raw materials, staffing
costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS 1.99] If
an entity categorises by function, then additional information on the nature of expenses – at a
minimum depreciation, amortisation and employee benefits expense – must be disclosed. [IAS
1.104]
Other comprehensive income section
The other comprehensive income section is required to present line items which are classified by
their nature, and grouped between those items that will or will not be reclassified to profit and
loss in subsequent periods. [IAS 1.82A]
An entity's share of OCI of equity-accounted associates and joint ventures is presented in
aggregate as single line items based on whether or not it will subsequently be reclassified to
profit or loss. [IAS 1.82A]*
* Clarified by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
When an entity presents subtotals, those subtotals shall be comprised of line items made up of
amounts recognised and measured in accordance with IFRS; be presented and labelled in a clear
and understandable manner; be consistent from period to period; not be displayed with more
prominence than the required subtotals and totals; and reconciled with the subtotals or totals
required in IFRS. [IAS 1.85A-85B]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
Other requirements
Additional line items may be needed to fairly present the entity's results of operations. [IAS 1.85]
Items cannot be presented as 'extraordinary items' in the financial statements or in the notes.
[IAS 1.87]
Certain items must be disclosed separately either in the statement of comprehensive income or in
the notes, if material, including: [IAS 1.98]
 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
 restructurings of the activities of an entity and reversals of any provisions for the costs of
restructuring
 disposals of items of property, plant and equipment
 disposals of investments
 discontinuing operations
 litigation settlements
 other reversals of provisions
Statement of cash flows
Rather than setting out separate requirements for presentation of the statement of cash flows, IAS
1.111 refers to IAS 7 Statement of Cash Flows.
Statement of changes in equity
IAS 1 requires an entity to present a separate statement of changes in equity. The statement must
show: [IAS 1.106]
 total comprehensive income for the period, showing separately amounts attributable to
owners of the parent and to non-controlling interests
 
  the effects of any retrospective application of accounting policies or restatements made in
accordance with IAS 8, separately for each component of other comprehensive income
 
 reconciliations between the carrying amounts at the beginning and the end of the period
for each component of equity, separately disclosing:
o profit or loss

o other comprehensive income*

o transactions with 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
* An analysis of other comprehensive income by item is required to be presented either in the
statement or in the notes. [IAS 1.106A]
The following amounts may also be presented on the face of the statement of changes in equity,
or they may be presented in the notes: [IAS 1.107]
 amount of dividends recognised as distributions
 the related amount per share.
Notes to the financial statements
The notes must: [IAS 1.112]
 present information about the basis of preparation of the financial statements and the
specific accounting policies used
 disclose any information required by IFRSs that is not presented elsewhere in the
financial statements and
 provide additional information that is not presented elsewhere in the financial statements
but is relevant to an understanding of any of them
Notes are presented in a systematic manner and cross-referenced from the face of the financial
statements to the relevant note. [IAS 1.113]
IAS 1.114 suggests that the notes should normally be presented in the following order:*
 a statement of compliance with IFRSs
 a summary of significant accounting policies applied, including: [IAS 1.117]
o the measurement basis (or bases) used in preparing the financial statements
 o the other accounting policies used that are relevant to an understanding of the
financial statements
 supporting information for items presented on the face of the statement of financial
position (balance sheet), statement(s) of profit or loss and other comprehensive income,
statement of changes in equity and statement of cash flows, in the order in which each
statement and each line item is presented
 other disclosures, including:
o contingent liabilities (see IAS 37) and unrecognised contractual commitments
o non-financial disclosures, such as the entity's financial risk management
objectives and policies (see IFRS 7 Financial Instruments: Disclosures)
* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016, clarifies this order just
to be an example of how notes can be ordered and adds additional examples of possible ways of
ordering the notes to clarify that understandability and comparability should be considered when
determining the order of the notes.
Other disclosures
Judgements and key assumptions
An entity must 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 entity's accounting policies that have the most significant effect on the amounts
recognised in the financial statements. [IAS 1.122]
Examples cited in IAS 1.123 include management's judgements in determining:
 when substantially all the significant risks and rewards of ownership of financial assets
and lease assets are transferred to other entities
 
 whether, in substance, particular sales of goods are financing arrangements and therefore
do not give rise to revenue.
An entity must also disclose, in the notes, information about the key assumptions concerning the
future, and other key 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. [IAS 1.125] These disclosures do not involve disclosing
budgets or forecasts. [IAS 1.130]
Dividends
In addition to the distributions information in the statement of changes in equity (see above), the
following must be disclosed in the notes: [IAS 1.137]
  the amount of dividends proposed or declared before the financial statements were
authorised for issue but which were not recognised as a distribution to owners during the
period, and the related amount per share
 the amount of any cumulative preference dividends not recognised.
Capital disclosures
An entity discloses information about its objectives, policies and processes for managing capital.
[IAS 1.134] To comply with this, the disclosures include: [IAS 1.135]
 qualitative information about the entity's objectives, policies and processes for managing
capital, including>
o description of capital it manages
o nature of external capital requirements, if any

o how it is meeting its objectives

 quantitative data about what the entity regards as capital

 changes from one period to another
 whether the entity has complied with any external capital requirements and
 if it has not complied, the consequences of such non-compliance.
Puttable financial instruments
IAS 1.136A requires the following additional disclosures if an entity has a puttable instrument
that is classified as an equity instrument:
 summary quantitative data about the amount classified as equity
 the entity's objectives, policies and processes for managing its obligation to repurchase or
redeem the instruments when required to do so by the instrument holders, including any
changes from the previous period
 
 the expected cash outflow on redemption or repurchase of that class of financial
instruments and
 information about how the expected cash outflow on redemption or repurchase was
determined.
Other information
The following other note disclosures are required by IAS 1 if not disclosed elsewhere in
information published with the financial statements: [IAS 1.138]
  domicile and legal form of the entity
 country of incorporation
 address of registered office or principal place of business
 description of the entity's operations and principal activities
 if it is part of a group, the name of its parent and the ultimate parent of the group
 if it is a limited life entity, information regarding the length of the life
Terminology
The 2007 comprehensive revision to IAS 1 introduced some new terminology. Consequential
amendments were made at that time to all of the other existing IFRSs, and the new terminology
has been used in subsequent IFRSs including amendments. IAS 1.8 states: "Although this
Standard uses the terms 'other comprehensive income', 'profit or loss' and 'total comprehensive
income', an entity may use other terms to describe the totals as long as the meaning is clear. For
example, an entity may use the term 'net income' to describe profit or loss." Also, IAS 1.57(b)
states: "The descriptions used and the ordering of items or aggregation of similar items may be
amended according to the nature of the entity and its transactions, to provide information that is
relevant to an understanding of the entity's financial position."

Term before 2007 revision of IAS Term as amended by IAS 1 (2007)

1

balance sheet statement of financial position

cash flow statement statement of cash flows

income statement statement of comprehensive income (income

statement is retained in case of a two-statement
approach)

recognised in the income statement recognised in profit or loss

recognised [directly] in equity (only recognised in other comprehensive income

for OCI components)

recognised [directly] in equity (for recognised outside profit or loss (either in OCI or
recognition both in OCI and equity) equity)
 removed from equity and reclassified from equity to profit or loss as a
recognised in profit or loss reclassification adjustment
('recycling')

Standard or/and Interpretation IFRSs

on the face of In

equity holders owners (exception for 'ordinary equity holders')

balance sheet date end of the reporting period

reporting date end of the reporting period

after the balance sheet date after the reporting period

IAS 7 — Statement of Cash Flows

Overview
IAS 7 Statement of Cash Flows requires an entity to present a statement of cash flows as an
integral part of its primary financial statements. Cash flows are classified and presented into
operating activities (either using the 'direct' or 'indirect' method), investing activities or financing
activities, with the latter two categories generally presented on a gross basis.
IAS 7 was reissued in December 1992, retitled in September 2007, and is operative for financial
statements covering periods beginning on or after 1 January 1994.
History of IAS 7

June 1976 Exposure Draft E7 Statement of Source and Application of Funds

October 1977 IAS 7 Statement of Changes in Financial Position

July 1991 Exposure Draft E36 Cash Flow Statements

December 1992 IAS 7 (1992) Cash Flow Statements

1 January 1994 Effective date of IAS 7 (1992)

 6 September 2007 Retitled from Cash Flow Statements to Statement of Cash Flows as a
consequential amendment resulting from revisions to IAS 1

16 April 2009 IAS 7 amended by Annual Improvements to IFRSs 2009 with

respect to expenditures that do not result in a recognised asset.

1 July 2009 Effective date for amendments from IAS 27(2008) relating to

changes in ownership of a subsidiary

1 January 2010 Effective date of the April 2009 revisions to IAS 7

29 January 2016 Amended by Disclosure Initiative (Amendments to IAS 7)

1 January 2017 Effective date of the January 2016 revisions to IAS 7

Related Interpretations
 None
Amendments under consideration by the IASB
 Disclosure initiative – Principles of disclosure
Summary of IAS 7
Objective of IAS 7
The objective of IAS 7 is to require the presentation of information about the historical changes
in cash and cash equivalents of an entity by means of a statement of cash flows, which classifies
cash flows during the period according to operating, investing, and financing activities.
Fundamental principle in IAS 7
All entities that prepare financial statements in conformity with IFRSs are required to present a
statement of cash flows. [IAS 7.1]
The statement of cash flows analyses changes in cash and cash equivalents during a period. Cash
and cash equivalents comprise cash on hand and demand deposits, together with short-term,
highly liquid investments that are readily convertible to a known amount of cash, and that are
subject to an insignificant risk of changes in value. Guidance notes indicate that an investment
normally meets the definition of a cash equivalent when it has a maturity of three months or less
from the date of acquisition. Equity investments are normally excluded, unless they are in
substance a cash equivalent (e.g. preferred shares acquired within three months of their specified
redemption date). Bank overdrafts which are repayable on demand and which form an integral
part of an entity's cash management are also included as a component of cash and cash
equivalents. [IAS 7.7-8]
Presentation of the Statement of Cash Flows
Cash flows must be analysed between operating, investing and financing activities. [IAS 7.10]
Key principles specified by IAS 7 for the preparation of a statement of cash flows are as follows:
 operating activities are the main revenue-producing activities of the entity that are not
investing or financing activities, so operating cash flows include cash received from
customers and cash paid to suppliers and employees [IAS 7.14]
 investing activities are the acquisition and disposal of long-term assets and other
investments that are not considered to be cash equivalents [IAS 7.6]
 financing activities are activities that alter the equity capital and borrowing structure of
the entity [IAS 7.6]
 interest and dividends received and paid may be classified as operating, investing, or
financing cash flows, provided that they are classified consistently from period to period
[IAS 7.31]
 cash flows arising from taxes on income are normally classified as operating, unless they
can be specifically identified with financing or investing activities [IAS 7.35]
 for operating cash flows, the direct method of presentation is encouraged, but the indirect
method is acceptable [IAS 7.18]
The direct method shows each major class of gross cash receipts and gross cash
payments. The operating cash flows section of the statement of cash flows under the
direct method would appear something like this:

Cash receipts from customers xx,xxx

Cash paid to suppliers xx,xxx

Cash paid to employees xx,xxx

Cash paid for other operating xx,xxx

expenses

Interest paid xx,xxx

Income taxes paid xx,xxx

 Net cash from operating activities xx,xxx

 The indirect method adjusts accrual basis net profit or loss for the effects of non-cash
transactions. The operating cash flows section of the statement of cash flows under the
indirect method would appear something like this:

Profit before interest and income taxes xx,xxx

Add back depreciation xx,xxx

Add back impairment of assets xx,xxx

Increase in receivables xx,xxx

Decrease in inventories xx,xxx

Increase in trade payables xx,xxx

Interest expense xx,xxx

Less Interest accrued but not yet paid xx,xxx

Interest paid xx,xxx

Income taxes paid xx,xxx

Net cash from operating activities xx,xxx

 the exchange rate used for translation of transactions denominated in a foreign currency
should be the rate in effect at the date of the cash flows [IAS 7.25]
 cash flows of foreign subsidiaries should be translated at the exchange rates prevailing
when the cash flows took place [IAS 7.26]
 as regards the cash flows of associates, joint ventures, and subsidiaries, where the equity
or cost method is used, the statement of cash flows should report only cash flows between
the investor and the investee; where proportionate consolidation is used, the cash flow
statement should include the venturer's share of the cash flows of the investee [IAS 7.37]
 aggregate cash flows relating to acquisitions and disposals of subsidiaries and other
business units should be presented separately and classified as investing activities, with
 specified additional disclosures. [IAS 7.39] The aggregate cash paid or received as
consideration should be reported net of cash and cash equivalents acquired or disposed of
[IAS 7.42]
 cash flows from investing and financing activities should be reported gross by major
class of cash receipts and major class of cash payments except for the following cases,
which may be reported on a net basis: [IAS 7.22-24]
o cash receipts and payments on behalf of customers (for example, receipt and
repayment of demand deposits by banks, and receipts collected on behalf of and
paid over to the owner of a property)
o cash receipts and payments for items in which the turnover is quick, the amounts
are large, and the maturities are short, generally less than three months (for
example, charges and collections from credit card customers, and purchase and
sale of investments)
o cash receipts and payments relating to deposits by financial institutions

o cash advances and loans made to customers and repayments thereof

 investing and financing transactions which do not require the use of cash should be
excluded from the statement of cash flows, but they should be separately disclosed
elsewhere in the financial statements [IAS 7.43]
 entities shall provide disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities [IAS 7.44A-44E]*
 the components of cash and cash equivalents should be disclosed, and a reconciliation
presented to amounts reported in the statement of financial position [IAS 7.45]
 the amount of cash and cash equivalents held by the entity that is not available for use by
the group should be disclosed, together with a commentary by management [IAS 7.48]

IFRS 16 — Leases
Overview
IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases.
The standard provides a single lessee accounting model, requiring lessees to recognise assets and
liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a
low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach
to lessor accounting substantially unchanged from its predecessor, IAS 17.
IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or
after 1 January 2019.
History of IFRS 16
 

Date Development Comments

July 2006 Added to the IASB's agenda

19 March 2009 Discussion Paper DP/2009/1 Leases: Comment deadline

Preliminary Views published 17 July 2009

17 August 2010 Exposure Draft ED/2010/9 Leases published Comment deadline

15 December 2010

21 July 2011 IASB/FASB announce intention to re-expose ED originally

proposals expected in first
half of 2012

16 May 2013 Exposure Draft ED/2013/6 Leases published Comment deadline

13 September 2013

13 January IFRS 16 Leases published Effective for annual

2016 periods beginning
on or after 1
January 2019

14 May 2020 Amended by Annual Improvements to IFRS Effective for annual

Standards 2018–2020 (lease incentives periods beginning
illustrative example). Click for more on or after 1
information January 2022

28 May 2020 Amended by Covid-19-Related Rent Effective for annual

Concessions (Amendment to IFRS 16) periods beginning
on or after 1 June
2020

27 August 2020 Amended by Interest Rate Benchmark Effective for annual

Reform — Phase 2 (Amendments to IFRS 9, periods beginning
IAS 39, IFRS 7, IFRS 4 and IFRS 16) on or after 1
January 2021
 31 March 2021 Amended by Covid-19-Related Rent Effective for annual
Concessions beyond 30 June 2021 periods beginning
(Amendment to IFRS 16) on or after 1 April
2021

 
Related Interpretations
 None
Amendments under consideration by the IASB
 IFRS 16 — Lease liability in a sale and leaseback
 IFRS 16 and COVID-19 — Extension of practical expedient
Superseded Standards
IFRS 16 replaces the following standards and interpretations:
 IAS 17 Leases
 IFRIC 4 Determining whether an Arrangement contains a Lease
 SIC-15 Operating Leases - Incentives
 SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease
Guides
 Leases — A guide to IFRS 16
Summary of IFRS 16
Objective
IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of
leases, with the objective of ensuring that lessees and lessors provide relevant information that
faithfully represents those transactions. [IFRS 16:1]
Scope
IFRS 16 Leases applies to all leases, including subleases, except for: [IFRS 16:3]
 leases to explore for or use minerals, oil, natural gas and similar non-regenerative
resources;
 leases of biological assets held by a lessee (see IAS 41 Agriculture);
 service concession arrangements (see IFRIC 12 Service Concession Arrangements);
  licences of intellectual property granted by a lessor (see IFRS 15 Revenue from Contracts
with Customers); and
 rights held by a lessee under licensing agreements for items such as films, videos, plays,
manuscripts, patents and copyrights within the scope of IAS 38 Intangible Assets
A lessee can elect to apply IFRS 16 to leases of intangible assets, other than those items listed
above. [IFRS 16:4]
Recognition exemptions
Instead of applying the recognition requirements of IFRS 16 described below, a lessee may elect
to account for lease payments as an expense on a straight-line basis over the lease term or
another systematic basis for the following two types of leases:
i) leases with a lease term of 12 months or less and containing no purchase options – this election
is made by class of underlying asset; and
ii) leases where the underlying asset has a low value when new (such as personal computers or
small items of office furniture) – this election can be made on a lease-by-lease basis.
[IFRS 16:5, 6 & 8]
Identifying a lease
A contract is, or contains, a lease if it conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. [IFRS 16:9]
Control is conveyed where the customer has both the right to direct the identified asset’s use and
to obtain substantially all the economic benefits from that use. [IFRS 16:B9]
An asset is typically identified by being explicitly specified in a contract, but an asset can also be
identified by being implicitly specified at the time it is made available for use by the customer.
However, where a supplier has a substantive right of substitution throughout the period of use, a
customer does not have a right to use an identified asset. A supplier’s right of substitution is only
considered substantive if the supplier has both the practical ability to substitute alternative assets
throughout the period of use and they would economically benefit from substitution. [IFRS
16:B13-14]
A capacity portion of an asset is still an identified asset if it is physically distinct (e.g. a floor of a
building). A capacity or other portion of an asset that is not physically distinct (e.g. a capacity
portion of a fibre optic cable) is not an identified asset, unless it represents substantially all the
capacity such that the customer obtains substantially all the economic benefits from using the
asset. [IFRS 16:B20]
Separating components of a contract
For a contract that contains a lease component and additional lease and non-lease components,
such as the lease of an asset and the provision of a maintenance service, lessees shall allocate the
consideration payable on the basis of the relative stand-alone prices, which shall be estimated if
observable prices are not readily available.
As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-
lease components from lease components and instead account for all components as a lease.
[IFRS 16:13-15]
Lessors shall allocate consideration in accordance with IFRS 15 Revenue from Contracts with
Customers.
Key definitions
[IFRS 16: Appendix A]
Interest rate implicit in the lease
The interest rate that yields a present value of (a) the lease payments and (b) the unguaranteed
residual value equal to the sum of (i) the fair value of the underlying asset and (ii) any initial
direct costs of the lessor.
Lease term
The non-cancellable period for which a lessee has the right to use an underlying asset, plus:
a) periods covered by an extension option if exercise of that option by the lessee is reasonably
certain; and
b) periods covered by a termination option if the lessee is reasonably certain not to exercise that
option
Lessee’s incremental borrowing rate
The rate of interest that a lessee would have to pay to borrow over a similar term, and with a
similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset
in a similar economic environment.
Accounting by lessees
Upon lease commencement a lessee recognises a right-of-use asset and a lease liability. [IFRS
16:22]
The right-of-use asset is initially measured at the amount of the lease liability plus any initial
direct costs incurred by the lessee. Adjustments may also be required for lease incentives,
payments at or prior to commencement and restoration obligations or similar. [IFRS 16:24]
After lease commencement, a lessee shall measure the right-of-use asset using a cost model,
unless: [IFRS 16:29, 34, 35]
i) the right-of-use asset is an investment property and the lessee fair values its investment
property under IAS 40; or
ii) the right-of-use asset relates to a class of PPE to which the lessee applies IAS 16’s revaluation
model, in which case all right-of-use assets relating to that class of PPE can be revalued.
Under the cost model a right-of-use asset is measured at cost less accumulated depreciation and
accumulated impairment. [IFRS 16:30(a)]
The lease liability is initially measured at the present value of the lease payments payable over
the lease term, discounted at the rate implicit in the lease if that can be readily determined. If that
rate cannot be readily determined, the lessee shall use their incremental borrowing rate. [IFRS
16:26]
Variable lease payments that depend on an index or a rate are included in the initial measurement
of the lease liability and are initially measured using the index or rate as at the commencement
date. Amounts expected to be payable by the lessee under residual value guarantees are also
included. [IFRS 16:27(b),(c)]
Variable lease payments that are not included in the measurement of the lease liability are
recognised in profit or loss in the period in which the event or condition that triggers payment
occurs, unless the costs are included in the carrying amount of another asset under another
Standard. [IFRS 16:38(b)
The lease liability is subsequently remeasured to reflect changes in: [IFRS 16:36]
 the lease term (using a revised discount rate);
 the assessment of a purchase option (using a revised discount rate);
 the amounts expected to be payable under residual value guarantees (using an unchanged
discount rate); or
 future lease payments resulting from a change in an index or a rate used to determine
those payments (using an unchanged discount rate).
The remeasurements are treated as adjustments to the right-of-use asset. [IFRS 16:39]
Lease modifications may also prompt remeasurement of the lease liability unless they are to be
treated as separate leases. [IFRS 16:36(c)]
Covid-19-related rent concessions 
A lessee may elect not to assess whether a COVID-19-related rent concession is a lease
modification. A lessee that that applies the exemption accounts for COVID-19-related rent
concessions as if they were not lease modifications. [IFRS 16:46A, 46B]
IBOR reform
A lessee accounts for modifications required by the IBOR reform (modifications required as a
direct consequence of the IBOR reform and made on an economically equivalent basis) by
updating the effective interest rate. All other modifications are accounted for using the applicable
requirements. [IFRS 16:105-106]
Accounting by lessors
Lessors shall classify each lease as an operating lease or a finance lease. [IFRS 16:61]
A lease is classified as a finance lease if it transfers substantially all the risks and rewards
incidental to ownership of an underlying asset. Otherwise a lease is classified as an operating
lease. [IFRS 16:62]
Examples of situations that individually or in combination would normally lead to a lease being
classified as a finance lease are: [IFRS 16:63]
 the lease transfers ownership of the asset to the lessee by the end of the lease term
 the lessee has the option to purchase the asset at a price which is expected to be
sufficiently lower than fair value at the date the option becomes exercisable that, at the
inception of the lease, it is reasonably certain that the option will be exercised
 the lease term is for the major part of the economic life of the asset, even if title is not
transferred
 at the inception of the lease, the present value of the minimum lease payments amounts to
at least substantially all of the fair value of the leased asset
 the leased assets are of a specialised nature such that only the lessee can use them without
major modifications being made
Upon lease commencement, a lessor shall recognise assets held under a finance lease as a
receivable at an amount equal to the net investment in the lease. [IFRS 16:67]
A lessor recognises finance income over the lease term of a finance lease, based on a pattern
reflecting a constant periodic rate of return on the net investment. [IFRS 16:75]
At the commencement date, a manufacturer or dealer lessor recognises selling profit or loss in
accordance with its policy for outright sales to which IFRS 15 applies. [IFRS 16:71c)]
A lessor recognises operating lease payments as income on a straight-line basis or, if more
representative of the pattern in which benefit from use of the underlying asset is diminished,
another systematic basis. [IFRS 16:81]
Sale and leaseback transactions
To determine whether the transfer of an asset is accounted for as a sale an entity applies the
requirements of IFRS 15 for determining when a performance obligation is satisfied. [IFRS
16:99]
If an asset transfer satisfies IFRS 15’s requirements to be accounted for as a sale the seller
measures the right-of-use asset at the proportion of the previous carrying amount that relates to
the right of use retained. Accordingly, the seller only recognises the amount of gain or loss that
relates to the rights transferred to the buyer. [IFRS 16:100a)]
If the fair value of the sale consideration does not equal the asset’s fair value, or if the lease
payments are not market rates, the sales proceeds are adjusted to fair value, either by accounting
for prepayments or additional financing. [IFRS 16:101]
Disclosure
The objective of IFRS 16’s disclosures is for information to be provided in the notes that,
together with information provided in the statement of financial position, statement of profit or
loss and statement of cash flows, gives a basis for users to assess the effect that leases have.
Paragraphs 52 to 60 of IFRS 16 set out detailed requirements for lessees to meet this objective
and paragraphs 90 to 97 set out the detailed requirements for lessors. [IFRS 16:51, 89]
Effective date and transition
An entity applies IFRS 16 for annual reporting periods beginning on or after 1 January 2019.
Earlier application is permitted if IFRS 15 Revenue from Contracts with Customers has also been
applied. [IFRS 16:C1]
As a practical expedient, an entity is not required to reassess whether a contract is, or contains, a
lease at the date of initial application. [IFRS 16:C3]
A lessee shall either apply IFRS 16 with full retrospective effect or alternatively not restate
comparative information but recognise the cumulative effect of initially applying IFRS 16 as an
adjustment to opening equity at the date of initial application. [IFRS 16:C5, C7]