International Accounting

Standards

IAS 1 Presentation of
Financial Statements

1
Objective

 To explain the bases for the

presentation of general purpose
financial statements

2
Scope
IAS 1 sets out
 the overall considerations for the presentation of financial statements,
 guidelines for their structure,
 and the minimum content requirements

It also requires financial statements to:

 present fairly the financial position, performance and cash flow
 and to be prepared on an accrual and going concern basis

It must be applied for all financial statements prepared

in accordance with IAS.
It is applicable for all types of enterprises, including
bank and insurance companies. 3
 Components and Structure of
Financial Statements

A complete set of financial statements must include

the following components:
a balance sheet;
an income statement;
a statement of changes in equity;
a cash flow statement; and
accounting policies and explanatory notes.

The entity’s management/directors is responsible for

preparing and presenting the financial statements.
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 Continued-Components…
IAS 1 encourages entities to present
 a financial review or comment on their financial
performance, financial position and the uncertainties
faced.
 additional statements such as environmental reports.

Financial statements and each component of the financial

statements must be clearly identified and distinguished
from other information in the annual report.

IASs apply only to the financial statements and not to

other information presented in the annual report.

Financial statements must be presented at least annually.5

 Continued-Components…
IAS 1 states that an entity should be in a position to issue
financial statements within 6 months from the balance
sheet date.

The following information must also be clear:

 the name of the reporting entity
 whether the financial statements cover individual financial
statements or consolidated financial statements,
 the balance sheet date, or period of reporting,
 reporting currency, and
 level of precision of financial statement figures (e.g., millions).

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 Overall Considerations

The overall factors included in IAS 1 are:

 Going concern
 Accrual basis of accounting
 Materiality and aggregation
 Offsetting
 Accounting policies
 Consistency of presentation
 Comparative information
 Compliance with IASs
 Fair presentation and compliance with International
Accounting Standards

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 Going Concern
Going Concern – an assessment of the enterprise’s
ability to continue as a going concern must be
made at each reporting date.

FS should be prepared on a going concern basis –

unless the business will cease or there is no
realistic alternative but to liquidate.

Disclosure requirements if:

 there are uncertainties regarding the ability to continue as
a going concern
 FS not prepared on a going concern basis.
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 Accrual Basis of Accounting, Materiality &
Aggregation

Accrual Basis of Accounting – should be applied

in the preparation of financial statements, except
for the cash flow statement.

Materiality and Aggregation

Each material item should be presented separately in the
financial statements.

Immaterial items should be aggregated with amounts of a

similar nature and function and need not be presented
separately.
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 Continued – Accrual Basis…
Materiality –
 Information is material if its non-disclosure could
influence the economic decision of users.
 Materiality depends on the size and nature of the item.

“IASs are not intended to apply to immaterial items.”

Examples
 Individual related party transactions might be disclosed
even though the amounts involved are immaterial.
 Information about a new segment might be relevant,
irrespective of size, since it may affect the assessment of
risks and opportunities facing the entity.
10
 Offsetting

Offsetting – Assets and liabilities should not be

offset unless offsetting is specifically required or
permitted by another IAS.

Income and expense items are to be offset

only when:
 an IAS requires or permits offsetting: or
 gains, losses and related expenses arising from similar
transactions are not material in which case these amounts
should be aggregated.

11
 Accounting Policies

Accounting policies must ensure that the financial

statements comply with all applicable IAS and
SIC Interpretations.

Where there is no IAS, the accounting policies

selected must be such that the information
included in the financial statements is:
 relevant to users’ decision making needs; and
 reliable, they are neutral and reflect the economic
substance of transactions
12
 Continued – Accounting Policies…
Where there is no IAS, select policies with regard to:
 IASs dealing with similar issues
 IASC Framework
 Industry practice and pronouncement of other standard
setters
 But no requirement to refer to IAS Exposure Drafts

Accounting policies should describe:

 The measurement basis (bases) used in preparing the
financial statements (historical cost, current cost,
realizable value, fair value, or present value),
 Any specific accounting policy that is necessary for a
proper understanding of the financial statements.
13
 Continued – Accounting Policies
An entity may consider presenting the following
accounting policies:
 Revenue recognition
 Consolidation principles, incl. Subsidiaries and associates
 Business combinations
 Joint ventures
 Recognition and depreciation/amortization of tangibles
and intangibles
 Capitalization of borrowing costs and other expenditures
 Construction contracts
 Investment properties
14
 Continued – Accounting Policies
 Financial instruments and investments
 Leases
 Research and development costs
 Inventories
 Taxes
 Provisions
 Employee benefit costs
 Foreign currency translation and hedging
 Basis of segment reporting
 Definition of cash and cash equivalent
 Inflation accounting
 Government grants 15
 Consistency of Presentation

The presentation and classification of items in the

financial statements should be retained from one
period to the next unless:
 the enterprise significantly changes the nature of its
operation; or
 a change is required by an IAS or SIC Interpretation.

When a change in presentation is made,

comparative information must be reclassified.

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 Continued – Consistency…

If more than one accounting policy is available

under an IAS or Interpretation, one of these must
be chosen and applied consistently unless the
IAS or Interpretation specifically requires or
permits categorization of items.

If a Standard requires or permits categorization of

items, the most appropriate accounting policy
should be selected and applied consistently to
each category.
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 Comparative Information

Comparative numerical information for the

previous period is required to be disclosed unless
such disclosures is exempted by another IAS.

Reclassify comparative amounts if the presentation

or classification of items in the financial
statements is amended.

The nature, amount of and reason for any

reclassification should be disclosed.
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 Compliance with IASs

 An enterprise whose FS comply with IAS

must disclose that fact.

 All standards and interpretations must be

complied with. No longer:
– “comply with IASs in all material respects”
– “comply with the significant requirements of
IASs”
– “are based on IASs”
19
 Fair Presentation

A fair presentation of FS is, in virtually all

cases, achieved by an appropriate
application of IASs.

Fair presentation Override

If compliance with an IAS would be misleading,

departure from that standard is required – only in
extremely rare circumstances.
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 Continued – Fair Presentation

Comprehensive disclosures requirements

include:
a.) that management has concluded that the
financial statements fairly present the enterprise’s
financial position, financial performance and
cash flow,
b.) that it has complied in all material respects with
applicable IAS except that it has departed from a
Standard in order to achieve a fair presentation,

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 Continued – Fair Presentation

c.) the Standard from which the enterprise has

departed, the nature of the departure, including
the treatment that the Standard would require, the
reason why that treatment would be misleading in
the circumstances and the treatment adopted and
d.) the financial impact of the departure on the
enterprise’s net profit or loss, assets, liabilities,
equity and cash flows for each period presented.

22
 Early Application of International
Accounting Standards

When an enterprise applies an IAS before its

effective date, that fact must be disclosed
in the FS.

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 SIC-8 First-Time Application of IASs

 Prepare as if the FS had always been prepared

with IASs and SICs effective for the period of
first-time application.
 Apply IASs and SICs retrospectively, unless:
– Different treatment permitted/required in individual
IASs/SICs or
– Adjustment cannot be reasonably determined.
 Restate comparative information unless
impracticable.
 Adjust opening retained earnings of earliest
period presented. 24
 SIC-8 First-Time Application of IASs

Disclosure requirements:
– the fact that the amount of the the adjustment
to the opening balance of retained earnings
cannot be reasonably determined;
– the fact that it is impracticable to provide
comparative information, and
– the policy selected for each IAS that permits a
choice of transitional accounting policies.

25
 Balance Sheet: Current/Non-current
Distinction

Present assets and liabilities on the face of the

BS as:
– using a current/non-current classification; or
– broadly in order of their liquidity.

Whichever method is chosen:

– Disclose amounts due for recovery or settlement
after more than 12 months for each asset and
liability item.
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 Current Assets
Current assets are:
 assets expected to be realized, consumed or disposed of
in the normal course of the enterprise’s operating cycle;
or
 Assets held primarily for trading purposes or the short-
term and expected to be realized within 12 months of
balance sheet date; or
 Cash or cash equivalent assets not restricted in use.

Current assets include cash and cash equivalents

that are not restricted in their use.
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 Current Liabilities

Short-term debt should be classified as non-

current if
– the original term was over 12 months,
– there is an intention to re-finance, and
– a refinancing agreement is completed before
authorization of the financial statements.

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 Current Liabilities

Current liabilities are liabilities:

– expected to be settled in the normal course of
the enterprise’s operating cycle; or
– due to be settled within 12 months of the
balance sheet date.

29
 Long-term Interest Bearing Liabilities

Long-term interest bearing liabilities should

continue to be classified as non-current, even if
they are due for settlement within 12 months
from the balance sheet date, provided that the
original term was more than 12 months and the
enterprise has the intention and ability to “ roll
over” the obligation.

30
 Balance Sheet: Minimum Information

Item that must, at a minimum, be presented on

the face of the balance sheet:
– Property, plant and equipment
– Intangible assets
– Financial assets
– Equity investment
– Inventories
– Trade and other receivable

31
Continued – Balance Sheet…

– Cash and cash equivalents

– Issued capital and reserves
– Minority interest
– Non-current interest bearing liabilities
– Provisions
– Tax liabilities and assets
– Trade and other payables

32
Additional Information Disclosed on the
Face of the Balance Sheet or in the Notes

Further sub-classifications of the line items can be

disclosed either
– on the face of the balance sheet or
– in the notes to the balance sheet.

Separately present amounts payable to and

receivable from parent, subsidiaries, associates
and other related parties.

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 Detailed Disclosures

Detailed disclosures relating to equity line items are

also required. They can be made either on the
face of the balance sheet or in the notes to the
balance sheet.

Comprehensive disclosure regarding equity items:

– For each class of share capital (face or notes):
o Number of shares authorized
o Number of shares issued and fully paid
o Number of shares issued and not fully paid
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Continued – Detailed Disclosures

o Par value or no-par value

o A reconciliation of movements in number of
shares
o Rights, preferences and restrictions
o Treasury shares
o Shares held for options and sale contracts
- Nature and purpose of each equity reserve
- Proposed dividends
- Cumulative preference dividends not recognized.

35
 Income Statement: Minimum
Information

Items that must, as a minimum, be presented on

the face of the income statements:
– Revenue
– Results from operating activities
– Finance costs
– Share of profits and losses of associates and joint
ventures accounted for using the equity method

36
 Continued – Income…

– Tax expense
– Profit or loss from ordinary activities
– Extraordinary items
– Minority interest
– Net profit and loss for the period

37
Additional Information Disclosed on the Face of
the Income Statement or in the Notes

Additional Information Disclosed on the Face of the

Income Statement or in the Notes
– an analysis of expanses using a classification based on
either the nature of expenses or their function.

When the nature of expense method is used,

expenses are aggregated in the income statement
according to their nature (e.g., depreciation,
transportation, salaries and wages, advertising
expense).

38
 Continued – Additional Info…
Example: Income statement: Nature of expenses method

Revenue x
Other operating income x
Changes in inventories of finished goods & work in process x
Raw materials and consumables used x
Staff costs x
Depreciation and amortization x
Other operating expenses x
Total operating expenses (x)
Profit from operating activities x
39
 Continued – Additional Info…

When the cost of sales method or function of

expenses method is used, expenses are classified
according to their functions as part of cost of
sales, distribution or administrative activities.
Additional disclosure required about the nature
of expenses, including depreciation,
amortization and staff costs.

40
 Income statement: Function of
expenses
Example: Income statement: Function of expenses
Revenue X
Costs of sales (x)
Gross profit X
Other operating income X
Distribution costs (x)
Administrative expenses (x)
Other operating expenses (x)
Profit from operating activities X
41
 Continued – Income statement

The enterprise must also disclose the amount of

dividends per share (declared or proposed) for
the period.

The earnings per share should also be shown on the

face of the income statement. This only applies to
enterprises whose ordinary shares are publicly
traded.

42
 Changes in Equity

IAS 1 requires the presentation of a

statement (or as a separate component of
the financial statements) showing either:
– All changes in equity, or
– Changes other than those arising from capital
transactions with owners and distributions to
owners.

43
 Continued – Changes in Equity

The statement should show the change in

equity for the period resulting from:
– net profit or loss for the period
– income, expenses, gains and losses (including
prior period adjustments) recognized directly
in equity; and total of these items, and
– the cumulative effect of changes in accounting
policies and the correction of fundamental
errors.

44
 Continued – Changes in Equity

Other changes in equity must also be disclosed

either as part of the statement or in the notes:
 capital transactions with owners and distributions to
owners,
 the balance of accumulated profit or loss at the
beginning of the period and at the balance sheet date and
the movements for the period, and
 a reconciliation of changes in:
– each class of equity
– share premium
– each reserve

45
 Notes to the Financial Statements

The notes to the Financial Statement should

be presented in systematic order, and
cross-referenced to the balance sheet,
income and cash flow statement.

46
 Continued – Notes to…
The notes are normally presented in the following
order:
1. Statement of compliance with IASs.
2. Statement of measurement bases and accounting policies
3. Supporting items for information presented in the basic statements
4. Other disclosures, including:
a. Contingencies, commitments and other financial
disclosure, and
b. Non-financial disclosure.
The notes should:
– Present basis of preparation and accounting policies
(including measurement basis)
– Information required by IASs.
– Additional useful information not presented elsewhere.
47
 Other Disclosures
If not disclosed elsewhere in information published
with the financial statements, the enterprise must
disclose the following:
– the domicile and legal form of the enterprise, its
country of incorporation and the address of
– registered office (or, if different, the address of its
principal place of business);
– a description of its operations and principal activities;
– the name of its parent enterprise and ultimate parent
enterprise; and
– either the number of employees at the end of the
period or the average for the period.
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--- the end ---

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