IAS 1 PRESENTATION OF FINANCIAL STATEMENTS

PRESENTATION OF FINANCIAL STATEMENTS

Objective of IAS 1

The objective of IAS 1 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.

Scope of IAS 1

IAS 1 applies to all general purpose financial statements based on International Financial Reporting Standards.

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.

Objectives 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:

·         Assets

·         Liabilities

·         Equity

·         Income and Expenses, including gains and losses

·         Contributions by and distributions to 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 should include:

1.      A statement of financial position (balance sheet) at the end of the period

2. A statement of comprehensive income for the period (or an income statement and a statement of comprehensive income)
3. A statement of changes in equity for the period
4. A statement of cash flows for the period
5. Notes, comprising a summary of accounting policies and other explanatory notes

NB: 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.

An entity may use titles for the statements other than those stated above.

Key Terms in IAS 1

1.      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.

2.      Going Concern

An entity preparing IFRS financial statements is presumed to be 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.

3.      Accruals Basis of Accounting

IAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual basis of accounting. That is, costs should be recognized when incurred but not when money expense has been paid while income should be recognized when it has been earned but not when revenue has been received.

4.      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.

5.      Materiality and Aggregation

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.

6.      Set – Offs (Offsetting)

Assets and liabilities, and income and expenses, may not be offset unless required or permitted by an IFRS.

7.      Comparative Information

IAS 1 requires that comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements, both face of financial statements and notes, unless another Standard requires otherwise. If comparative amounts are changed or reclassified, various disclosures are required.

Structure and content of financial statements in general

Clearly identify: the financial statements

1. The reporting enterprise
2. Whether the statements are for the enterprise or for a group
3. The date or period covered
4. The presentation currency
5. The level of precision (thousands, millions, etc.)

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 a warning about problems of comparability.

Notes to the Financial Statements

The notes must:

• 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

IAS 1suggests that the notes should normally be presented in the following order:

1. A statement of compliance with IFRSs
2. A summary of significant accounting policies applied, including:
• The measurement basis (or bases) used in preparing the financial statements
• The other accounting policies used that are relevant to an understanding of the financial statements
3. Supporting information for items presented on the face of the statement of financial position (balance sheet), statement of comprehensive income (and income statement, if presented), statement of changes in equity and statement of cash flows, in the order in which each statement and each line item is presented
4. Other disclosures, including:
• Contingent liabilities (see IAS 37) and unrecognized contractual commitments
• Non-financial disclosures, such as the entity's financial risk management objectives and policies (see IFRS 7)

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.

Term before 2007 revision of IAS 1	Term as amended by IAS 1 (2007)
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 for OCI components)	Recognised in other comprehensive income
Recognised [directly] in equity (for recognition both in OCI and equity)	Recognised outside profit or loss (either in OCI or equity)
Removed from equity and recognised in profit or loss ('recycling')	Reclassified from equity to profit or loss as a reclassification adjustment
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