Dr.

Munther Al-Nimer

The International Accounting Standards (IAS):

Brief timeline of the development of IAS 1:

1975: The International Accounting Standards Committee (IASC) issues the first version of IAS
1, "Presentation of Financial Statements."

1997: IAS 1 is revised to require additional disclosures in financial statements.

2003: The IASC is replaced by the International Accounting Standards Board (IASB), which
takes over responsibility for developing and issuing International Financial Reporting Standards
(IFRS).

2007: IAS 1 is revised to require additional disclosures related to the fair value measurement of
financial instruments.

2010: IAS 1 is revised again to clarify the requirements for presenting a statement of
comprehensive income.

2011: Further revisions to IAS 1 are made to improve the structure and presentation of financial
statements.

2018: IAS 1 is updated to require additional disclosures related to changes in liabilities arising
from financing activities.

The development of IAS 1 has been a gradual process, with changes and updates made over
several decades to ensure that the standard remains relevant and effective. The most recent
updates to IAS 1 reflect ongoing efforts by the IASB to improve the quality and transparency of
financial reporting for investors and other stakeholders.

The development of International Accounting Standards (IAS) :

began in the 1960s, when a group of professional accounting organizations from several
countries formed the International Accounting Standards Committee (IASC). The IASC was
established to develop a set of globally accepted accounting standards that could be used by
companies around the world.

The IASC began by developing a set of 41 IAS, which were issued between 1973 and 2000.
These standards covered a wide range of accounting topics, including financial statement
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presentation, inventory valuation, revenue recognition, and employee benefits. While the IAS
were widely used in many countries, they were not mandatory and some countries had their own
national accounting standards.

In 2001, the IASC was restructured and replaced by the International Accounting Standards
Board (IASB). The IASB is an independent, private-sector organization that is responsible for
developing and issuing International Financial Reporting Standards (IFRS), which replaced the
IAS. The IFRS are now used by companies in more than 140 countries, including many of the
world's major economies.

The IAS and IFRS are continually being revised and updated by the IASB, to reflect changes in
accounting practices and to ensure that the standards remain relevant and effective. The
development of these standards has helped to promote transparency and comparability in
financial reporting, and has made it easier for investors, analysts, and other stakeholders to
understand and compare financial information from companies around the world.

key differences between International Accounting Standards (IAS) and International

Financial Reporting Standards (IFRS):

 Number of standards: IAS consists of 41 standards, while IFRS consists of over 16

standards.

 Status: IAS are considered to be the old version of international accounting standards,
while IFRS are the updated version that is currently used by companies around the world.

 Scope: IAS covers a narrower range of accounting topics than IFRS, which is more
comprehensive.

 Adoption: IFRS are mandatory for listed companies in many countries, while IAS were
not mandatory.

 Format: IAS typically have a simpler format than IFRS, which are more detailed and
structured.

 Fair value measurement: IFRS place a greater emphasis on fair value measurement than
IAS.

 Consolidation: IFRS require more extensive consolidation of financial statements than

IAS.

 Leases: IFRS require more detailed accounting for leases than IAS.
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 Impairment of assets: IFRS require more extensive impairment testing of assets than
IAS.

 Financial instruments: IFRS provide more detailed guidance on the accounting for
financial instruments than IAS.

It's worth noting that the IASB is in the process of updating and revising some of the IAS, and
some of these differences may be addressed in future updates to the standards.

Explain IAS 1:

IAS 1, "Presentation of Financial Statements," is a key international accounting standard that

outlines the requirements for presenting and disclosing information in financial statements. The
standard covers a wide range of topics, including the format and content of financial statements,
the measurement of assets and liabilities, and the disclosure of significant accounting policies
and estimates.

Some of the key provisions of IAS 1 include requirements for companies to present a balance
sheet, income statement, statement of changes in equity, and cash flow statement, as well as
specific guidance on how to present and disclose information related to specific types of assets
and liabilities. The standard also requires companies to disclose significant accounting policies,
including any changes to those policies, and to provide information about the key assumptions
and estimates used in preparing their financial statements.

Overall, IAS 1 is an important standard for anyone who is involved in preparing or interpreting
financial statements. By providing clear guidance on how financial information should be
presented and disclosed, the standard helps to promote transparency and comparability in
financial reporting, which is essential for investors, analysts, and other stakeholders who rely on
this information to make informed decisions.
IAS 1, "Presentation of Financial Statements," requires companies to present four primary
financial statements, which are:

Statement of Financial Position (Balance Sheet): This statement presents information about a
company's assets, liabilities, and equity at a specific point in time.

Statement of Comprehensive Income (Income Statement): This statement presents information

about a company's revenues, expenses, gains, and losses for a specific period of time.

Statement of Changes in Equity: This statement presents information about the changes in a
company's equity during a specific period of time, including the effects of transactions with
owners (such as issuing shares or paying dividends).
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Statement of Cash Flows: This statement presents information about a company's cash inflows
and outflows during a specific period of time, classified by operating, investing, and financing
activities.

In addition to these primary financial statements, IAS 1 also requires companies to provide
various notes and disclosures that provide additional information about the financial statements,
including significant accounting policies, estimates and judgments made in preparing the
financial statements, and other relevant information.

Overall, the financial statement structure required by IAS 1 is designed to provide users of
financial statements with a clear and comprehensive understanding of a company's financial
position, performance, and cash flows, as well as the significant accounting policies and
assumptions used in preparing the financial statements.

Three practical examples of issues that could arise when applying IAS 1 - Presentation of
Financial Statements, along with potential solutions:

 Example 1: A company has made significant changes to its accounting policies during the
current reporting period. The company is uncertain about how to present the impact of
these changes in the financial statements.

o Solution: The company should disclose the nature and effect of any changes in
accounting policies in the notes to the financial statements, including the reasons for the
changes and the impact on the financial statements. The company should also present a
reconciliation of any prior period amounts affected by the change.

 Example 2: A company has a significant investment in a subsidiary that it believes is

overvalued on the balance sheet. The company is concerned about how to present this
information in the financial statements.

o Solution: The company should present the investment in the subsidiary at its fair value,
which may be lower than the carrying amount on the balance sheet. The company should
also provide detailed disclosures in the notes to the financial statements explaining the
reasons for the impairment and the impact on the financial statements.
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 Example 3: A company has significant operating lease commitments that it is concerned

about disclosing in the financial statements because it may have a negative impact on the
company's credit rating.

o Solution: The company is required to disclose its significant operating lease

commitments in the notes to the financial statements. However, the company may
consider providing additional context or explanation around these commitments in order
to mitigate any negative impact on its credit rating. For example, the company could
explain how it plans to finance these lease commitments or how it expects them to
generate future cash flows. Alternatively, the company could provide supplementary non-
GAAP financial measures that adjust for the impact of the lease commitments. However,
any such measures should be clearly labeled and explained in the financial statements.

Numerical examples of how IAS 1 - Presentation of Financial Statements might be applied:

 Example 1: A company has the following information about its financial position
as at December 31, 2022:

Cash and cash equivalents: $10,000

Accounts receivable: $20,000
Inventory: $15,000
Property, plant, and equipment: $100,000
Accounts payable: $25,000
Bank loan (due in 2023): $50,000
Solution: The company should present its balance sheet as at December 31, 2022, in accordance
with the requirements of IAS 1. The balance sheet should be presented in a classified format,
with current assets and liabilities presented separately from non-current assets and liabilities. The
presentation might look something like this:

Balance Sheet as at December 31, 2022

Current assets:

Cash and cash equivalents $10,000

Accounts receivable $20,000
Inventory $15,000
Total current assets $45,000
Non-current assets:
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Property, plant, and equipment $100,000

Total non-current assets $100,000
Total assets $145,000

Current liabilities:

Accounts payable $25,000

Total current liabilities $25,000
Non-current liabilities:

Bank loan (due in 2023) $50,000

Total non-current liabilities $50,000
Total liabilities $75,000

Net assets $70,000

 Example 2: A company has the following information about its profit or loss for the year
ended December 31, 2022:

Revenue: $200,000
Cost of goods sold: $100,000
Selling and administrative expenses: $50,000
Depreciation expense: $10,000
Interest expense: $5,000
Income tax expense: $15,000
Solution: The company should present its profit or loss for the year ended December 31, 2022, in
accordance with the requirements of IAS 1. The profit or loss statement should be presented in a
format that distinguishes between revenue, cost of goods sold, gross profit, operating expenses,
and net profit or loss. The presentation might look something like this:

Profit or Loss Statement for the Year Ended December 31, 2022

Revenue $200,000
Cost of goods sold $100,000
Gross profit $100,000

Operating expenses:
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Selling and administrative expenses $50,000

Depreciation expense $10,000
Total operating expenses $60,000
Operating profit $40,000

Finance costs:

Interest expense $5,000

Profit before income tax $35,000
Income tax expense $15,000
Net profit $20,000

 Example 3: A company has the following information about its cash flows for the year
ended December 31, 2022:

Cash received from customers: $190,000

Cash paid to suppliers: $90,000
Cash paid for operating expenses: $50,000
Interest paid: $5,000
Income taxes paid: $10,000
Solution: The company should present its cash flow statement for the year ended December 31,
2022, in accordance with the requirements of IAS 1. The cash flow statement should be
presented using the indirect method, which starts with net profit or loss and adjusts for non-cash
items and changes in working capital. The presentation might look something like this:

Cash Flow Statement for the Year Ended December 31, 2022

Cash flows from operating activities:

Net profitNet profit $20,000

Adjustments for:

Depreciation expense $10,000

Interest expense $5,000
Income tax expense $15,000
Changes in working capital:
Increase in accounts receivable ($5,000)
Increase in inventory ($2,000)
Increase in accounts payable $10,000
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Net cash provided by operating activities $53,000

Cash flows from investing activities:

Purchase of property, plant, and equipment ($50,000)

Net cash used in investing activities ($50,000)
Cash flows from financing activities:

Repayment of bank loan ($10,000)

Net cash used in financing activities ($10,000)
Net increase in cash and cash equivalents $3,000
Cash and cash equivalents at beginning of year $7,000
Cash and cash equivalents at end of year $10,000

Note: The presentation of the cash flow statement should also include a reconciliation of the
opening and closing balances of cash and cash equivalents, as well as disclosure of significant
non-cash transactions.

XYZ Company has provided the following information for the year ended December 31,
2022:

Sales revenue of $150,000

Cost of goods sold of $80,000
Operating expenses of $30,000
Depreciation expense of $10,000
Interest expense of $10,000
Income tax expense of $5,000
Cash of $50,000
Accounts receivable of $20,000
Inventory of $30,000
Prepaid expenses of $5,000
Property, plant, and equipment of $200,000, with accumulated depreciation of $50,000
Accounts payable of $15,000
Accrued expenses of $5,000
Short-term borrowings of $10,000
Long-term borrowings of $100,000
Common stock of $50,000
Additional paid-in capital of $25,000
Retained earnings of $70,000
Using the information above, prepare the following financial statements:
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Income Statement
Statement of Comprehensive Income
Statement of Financial Position
Statement of Cash Flows

Income Statement:
Sales revenue $150,000
Cost of goods sold ($80,000)
Gross profit $70,000
Operating expenses ($30,000)
Depreciation expense ($10,000)
Interest expense ($10,000)
Income before tax $20,000
Income tax expense ($5,000)
Net income $15,000

Statement of Comprehensive Income:

Net income $15,000
Other comprehensive income -
Total comprehensive income $15,000

Statement of Financial Position:

Assets:
Cash $50,000
Accounts receivable $20,000
Inventory $30,000
Prepaid expenses $5,000
Property, plant, and equipment ($200,000 - $50,000) $150,000
Total assets $255,000

Liabilities and Equity:

Accounts payable $15,000
Accrued expenses $5,000
Short-term borrowings $10,000
Long-term borrowings $100,000
Common stock $50,000
Additional paid-in capital $25,000
Retained earnings $70,000
Total liabilities and equity $255,000
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Net income $15,000

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense $10,000
Increase in accounts receivable $(5,000)
Decrease in inventory $10,000
Decrease in prepaid expenses $2,000
Increase in accounts payable $5,000
Increase in accrued expenses $1,000
Net cash provided by operating activities $14,000

And here is the complete Statement of Cash Flows using the indirect method:

Cash flows from operating activities:

Net income $15,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense $10,000
Increase in accounts receivable $(5,000)
Decrease in inventory $10,000
Decrease in prepaid expenses $2,000
Increase in accounts payable $5,000
Increase in accrued expenses $1,000
Net cash provided by operating activities $14,000

Cash flows from investing activities:

Purchase of property, plant, and equipment $(30,000)
Net cash used in investing activities $(30,000)

Cash flows from financing activities:

Proceeds from short-term borrowings $10,000
Proceeds from long-term borrowings $100,000
Proceeds from issuance of common stock $50,000
Proceeds from issuance of additional paid-in capital $25,000
Net cash provided by financing activities $185,000

Net increase in cash $169,000

Cash at beginning of period $0
Cash at end of period $169,000

Note: The Statement of Cash Flows has been prepared using the indirect method.