ADVANCED FINANCIAL REPORTING

MD. ABU HANIF (SAJIB)

MBA (DU), CA – PS APPLICATION

FB – Sonargaon University Business Administration

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International Accounting Standard
As the economy becomes more global, so do the activities of companies and
lenders as well. This means that the need is greater than ever for a globally
accepted framework where financial records and reports are consistent,
comparable, reliable and transparent at international and domestic levels.

The Purpose of International Standards in Accounting

The purpose of these standards is to ensure that the financial centers of the world,
which have become more interconnected than ever, can use a global financial
reporting framework that ensures effective regulation of financial markets. The
growing volume of cross-border capital flows makes having international
standards, that are high in quality and testable across the board, a priority. By
having these standards in place, capital markets that are located in different
jurisdictions can create the most efficient capital flows that are beneficial to
regulators, organizations, and the market as a whole.

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 IAS 1 PRESENTATION OF FINANCIAL STATEMENTS
This statement covers a number of areas, including the background to the
purpose of final statements, their components and illustrations of the
presentation of the Income Statement and the Balance Sheet.

1. The purpose of Financial Statements

‘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.’

2. The components of the Financial Statements

A complete set of financial statements as set out in the Standard, comprises:
- balance sheet (from 1/1/2009 – ‘a statement of financial information as at the
end of ….)
- income statement (Do – ‘a statement of comprehensive income for the period)
- a statement of changes in equity
- a statement of cash flow - cash flow statement
- accounting policies and explanatory notes

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3. Accounting Concepts
 The statement requires compliance with a series of accounting concepts:

 - Going concern – the presumption is that the entity will not cease trading in
the immediate future. (This is generally taken to mean within the next 12
months.)
 - Accrual basis of accounting – with the exception of the cash flow statement
the information is prepared under the accruals concept, income and
expenditure is matched to the same accounting period.
 - Consistency – the presentation and classification of items in the financial
statements is to be consistent from one period to the next. Thus the entity uses
straight line depreciation one year it must do so for future years.
 - Materiality and aggregation – classes of similar items are to be presented
separately in the financial statements. This would apply to a grouping such as
current assets.
 - Offsetting – this is generally not permitted for both assets and liabilities and
income and expenditure. For example it is not permitted to offset a bank
overdraft with another bank account not in overdraft.
 - Comparative information – there is a requirement to show the figures from
the previous periods for all the amounts shown in the financial statements.
This is designed to help users of them to make relevant comparisons.

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Structure and content of financial statements
IAS 1 identifies in detail how the financial statements should be presented. It
also sets out some general principles that must be adopted in those
statements:
 - a clear identification of the financial statements (Income Statement,
Balance Sheet, etc). (alternative titles suggested from 1/1/2009)

 - the name of the entity (XYZ Limited).

 - the period covered by the financial statements (for the year ended, etc).
Note that statements are usually prepared on an annual basis. If this is not
the case the reason for the change, say to a short accounting period, must
be disclosed, as must the fact that the figures may not be comparable with
previous data.

 - the currency used (£s, $s, etc).

 - the rounding used (if the statements are presented in thousands,

millions, etc).

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Balance Sheet – ‘The Statement of financial position as at .....................
IAS 1 specifies the minimum information which must be shown on the face of the balance
sheet. It does not specify the order in which information is to be presented.
The statement requires entities to separate out:
 - Non–current assets, the usual sort of fixed assets such as property, plant, equipment,
plant and machinery, motor vehicles, intangible assets, goodwill, etc.
 - Current assets; inventories, trade receivables, cash and cash equivalents.
 - Current liabilities; trade payables, bank overdrafts and taxation.
 - Non–current liabilities; bank loans and long term provisions.
 - Equity; Share capital, share premium reserves and retained earnings.

 Note - IAS 1 does not prescribe the format of the balance sheet. 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.

 The layout below is acceptable and familiar to teachers and students. As with the titles of
the statements it may be a source of confusion to see the layouts used in recent textbooks
and by some companies

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EXAMPLE - XYZ Limited
Balance Sheet/Statement of Financial Position at ............................................
Year 2nd Year
2016-17 2015-16

ASSETS

Non Current Assets:

Property, Plant & Equipment 68,662,000 69,642,000

Preliminary Expenses 40,000 20,000

Total Non-Current Assets 68,702,000 69,662,000

Current Assets:
Stock and Stores 7,875,000 8,855,000
Trade Debtors 9,950,000 10,975,000
Advances, Deposits and Prepayments 1,550,000 2,550,000
Cash and Cash Equivalents 2,500,000 2,800,000
Total Current Assets 21,875,000 25,180,000
TOTAL ASSETS 90,577,000 94,842,000
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EQUITY AND LIABLITIES

Share Holders' Equity

Share Capital 400,000 400,000

Revaluation Reserve - Land and Building 5,200,000 4,500,000

Accumulated Depreciation 5,577,000 6,590,000
Retained Earnings 27,500,000 50,952,000
38,277,000 62,042,000
Non Current Liablities
Long Term Loan 40,000,000 20,000,000
Total Non-Current Liabilities 40,000,000 20,000,000

Current Liablities
Short Term 3,000,000 3,500,000
Trade Creditors 7,800,000 8,800,000
Other Liabities 1,500,000 500,000
Total Current Liabilities 12,300,000 12,800,000
TOTAL EQUITY AND LIABLITIES 90,577,000 94,842,000
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XYZ Limited
Income Statement / Statement of Comprehensive Income at ………………

Year Year
Particulars 2016-17 2015-16

Turnover 93,050, 115,000,000

Less : Cost of Goods Sold 49,316,500 63,250,000
Gross Profit 43,733,500 51,750,000
Operating Expenses
Selling & Administrative 13,957,500 20,700,000
Operating Profit 29,776,000 31,050,000
Financial Expenses 6,600,000 4,400,000
Profit Before Tax 23,176,000 26,650,000
Provision for Tax 2,781,120 3,198,000
Net Profit 20,394,880 23,452,000

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Statement of Changes in Equity

Retained Earnings
2016-2017 2015-2016
Balance at start of year 43,000 35,000
Profit for the year 14,500 12,000
Transfers for other reserves - - -
57,500 47,000
Dividends Paid (5,000) (4,000)
Transfers to other reserves - -
Balance at end of year 52,500 43,000

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Other disclosures

Judgments and key assumptions

An entity must disclose, in the summary of significant accounting policies or
other notes, the judgments, 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]
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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>
 description of capital it manages
 nature of external capital requirements, if any
 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.
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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

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 I READ AND I FORGET

I HEAR AND I REMEMBER

I SEE AND I LEARN

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