PRESENTATION OF

FINANCIAL STATEMENTS
IAS 1
David Kolitz
Room 1.02, Streatham court
D.L.Kolitz@exeter.ac.uk
1
2
OBJECTIVE AND SCOPE
Objective
Basis for presentation of financial statements
comparability
Overall requirements for presentation
Purpose
Complete set
General features (Overall considerations)
Structure and content
(IAS 1, p1)
Scope
Applies to general purpose financial statements
Meets the needs of users who are not in a position to
request tailored reports
External users
(IAS 1, p2 6)
3
DEFINITIONS
General purpose financial statements
Impracticable
Entity cannot apply a requirement after making every
reasonable attempt to do so
IFRS
Standards issued by IASB
Comprise
IAS
IFRS
Interpretations (developed by IFRIC)
Material
Items are material if they can influence the economic
decisions of users
(IAS 1, p7)
4
FINANCIAL STATEMENTS -
PURPOSE
Structured representation of
financial position and financial
performance
Objective of financial statements
Provide information about
Financial position, financial
performance and cash flows that is
useful to wide range of users in making
economic decisions
Managements stewardship
(IAS 1, p9)
5
FINANCIAL STATEMENTS COMPLETE
SET
Statement of financial
position (B/S)
Statement of
comprehensive income
(I/S)
SOCIE
Statement of cash flows
(CF/S)
Notes, comprising
accounting policies &
other information
(IAS 1, p10)
6
FINANCIAL STATEMENTS GENERAL
FEATURES
The Framework is not part of accounting
standards
Brings concepts from The Framework within
the ambit of accounting standards
Fair presentation and compliance with IFRSs
Going concern
Accrual basis of accounting
Materiality and aggregation
Offsetting
Frequency of reporting
Comparative information
Consistency of presentation
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Fair presentation and compliance
with IFRSs
Fair presentation
Faithful representation (qualitative characteristic from
The Framework)
Definitions and recognition criteria (from the
Framework)
Application of IFRSs presumed to result in fair
presentation
If financial statements comply with IFRS
Statement of compliance
all requirements of IFRSs
Inappropriate treatment not rectified by disclosure
(IAS 1, p15- 24)
8
2 Accounting policies
(a) Statement of compliance
The Groups financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRSs) as
adopted by the European Union and International Financial
Reporting Interpretations Committee (IFRICs) interpretations and
with those parts of the Companies Act 2006 applicable to
companies reporting under IFRSs. The Companys financial
statements have been prepared on the same basis and, as
permitted by Section 408(3) of the Companies Act 2006, no income
statement is presented for the Company.
9
Fair presentation and compliance
with IFRSs . . .
In extremely rare circumstances, management may
conclude that compliance is misleading and conflicts
with the objective of financial statements in The
Framework
Where regulatory framework requires or does not
prohibit departure
IAS 1, p20 (a) (d)
Where regulatory framework prohibits departure
IAS 1, p23 (a) (b)
Management considers
Why objective of financial statements is not achieved
How circumstances differ from other entities that do
comply
10
Going concern
Underlying assumption of The
Framework
Management to assess
FS prepared on going concern basis
unless management intends to liquidate
or cease trading or has no realistic
alternative but to do so
To assess going concern assumption
All available information about future
using at least 12 month time horizon
history of profitable operations
other cases
profitability
debt repayments
sources of financing
(IAS 1, p25 26)
11
Accrual basis
Underlying assumption of The Framework
Financial statements prepared using accrual
basis
Items recognised as A, L, OE, I & E when
they satisfy definitions and recognition
criteria
(IAS 1, p27 28)
12
Materiality and aggregation
Information is material if it is capable of changing
a users decision
Significant in amount
Significant in nature or function
Present separately
Each material class of similar items
Items of a dissimilar nature
If line item not individually material, aggregated
with other items
(IAS 1, p29 31)
Materiality and aggregation - Examples
1. Should inventory and PP&E be disclosed separately?
Functions are so different (held for sale v used in business) that separate disclosure
required on face of SOFP
2. CA of land is 50 000 and CA of furniture is
100 000. Companys materiality limit is 300 000. Should land and furniture
be disclosed separately?
Although both are assets used in business, their different nature or function
requires separate disclosure in notes
3. Company has following assets, and materiality limit of 300 000
CA of machinery is 500 000 (including Machine A with CA of 450 000).
CA of office furniture is 300 000
CA of office equipment is 310 000
Should Machine A be disclosed separately and should the furniture and
equipment be disclosed as separate assets
No separate disclosure for Machine A as not material in function or nature.
Even though furniture and equipment are material in amount, they are
aggregated due to their common nature or function
On faceof SOFP, machinery, furniture and equipment all aggregated into PP&E
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14
Offsetting
Entity not to offset A & L or I & E, except where
required by a Standard
Reporting of assets net of valuation allowances is
not offsetting
Transactions incidental to main revenue
generating activities reported net of related
expenses
Gain on disposal = Proceeds - CA - selling expenses
(IAS 1, p32 35)
Offsetting - Examples
1. A machine (NCA) with CA of 20 000 is sold for
30 000. Disclose in I/S
I/S
Other income
- Profit on sale of machine (30 20) 10 000
2. A company, whose business is to buy and sell
machines, sold a machine for 30 000. Machine had
original cost of 20 000. Disclose in I/S
I/S
Revenue 30 000
Cost of sales (20 000)
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16
Frequency of reporting
Present a complete set of financial statements at least
annually
If end of reporting period changes and financial
statements presented for shorter or longer than one
year
Reason
Fact that amounts not comparable
(IAS 1, p36 37)
17
Comparative information
SOFP, SOCI, SOCIE, SOCF presented iro previous
period for
all amounts
narrative information where relevant
(IAS 1, p38 44)
IAS 8 deals with adjustments to comparative
information for changes in accounting policy and
correction of error
SOFP presented for
End of previous period (beginning of current period)
Beginning of previous period
18
Consistency of presentation
Retain presentation
and classification of
items unless
change in operations
or review of
presentation
IFRS requires a change
(IAS 1, p45 46)
19
Statement of directors responsibilities
The Directors are responsible for preparing the Annual Report, the Remuneration
report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial
year. Under that law the Directors have elected to prepare the Company and Group
financial statements in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union. Under company law the Directors must not
approve the financial statements unless they are satisfied that they give a true and fair
viewof the state of affairs of the Company and the Group and of the profit or loss of the
Group for that period. In preparing these financial statements, the Directors are required
to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable IFRSs as adopted by the European Union have been
followed, subject to any material departures disclosed and explained in the financial
statements; and
prepare the financial statements on the going concern basis unless it is inappropriate
to presume that the Company and the Group will continue in business.
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STRUCTURE AND CONTENT
Disclosure in
SOFP, SOCI, SOCIE
Notes
Other items either in those
statement or notes
(IAS 1, p47 48)
Identify financial
statements and
distinguish from other
information
(IAS 1, p49)
Display
name
company or group
date / period
currency
level of rounding
(IAS 1, p51- 53)
2 Accounting policies
(b) Basis of preparation
The financial statements are presented
in sterling, rounded to the nearest
million (m) unless otherwise stated
21
Statement of financial position
Does not prescribe order or format
Line items included when size, nature or function
relevant to understanding
Descriptions and ordering amended according to
nature of entity and its transactions
(IAS 1, p54 78)
22
Information to be presented in the
statement of financial position
Minimum line item disclosure
Property, plant & equipment
Intangible assets
Financial assets
Inventories
Trade & other receivables
Cash and equivalents
Trade & other payables
Financial liabilities
Liabilities and assets for current tax and deferred tax
Provisions
Non-current liabilities
Minority interest
Issued capital and reserves
(IAS 1, p54 59)
Example
Sainsburys 2011 FS, B/S. p52
23
Current / non-current distinction
Required to present current and non-current
assets and liabilities on face of B/S (useful
information for entities with identifiable operating
cycles) except where liquidity presentation
provides more relevant and reliable information
(financial institutions)
(IAS 1, p60 -76)
Operating cycle:

Realised by sale
to customers
Accounts
receivable
Cash inflow
from customers



Inventory Cash



Acquisition from
suppliers
Accounts
payable
Cash outlow
to suppliers


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The non-current and current
distinction
Current assets
realised, sold or
consumedin course of
operating cycle
held for trading purposes
expected to be realised
within 12 months after
reporting period
cash or cash equivalents
All other assets are non-
current
(IAS 1, p66-68)
Current liabilities
settledwithin course of
operating cycle
Held for trading purposes
settledwithin 12 months after
reporting period
No unconditional right to defer
settlement for 12 months after
reporting period
All other liabilities are non-
current
(IAS 1, p69 -76)
Example Liabilities and refinancing of
due payments
Loan of 100 000 is raised in 20X1. Loan is to be repaid in
two instalments, 40 000 in 20X5 and 60 000 in 20X6. An
agreement is reached whereby payment of the 40 000
need only be made in 20X6. Show SOFP at 31/12/X4
a) Agreement is signed on 05/01/X5
b) Agreement is signed on 27/12/X4
SOFP at 31/12/X4
20x4 20x3
a) LIABILITIES
Non current 60 000 100 000
Current 40 000
b) LIABILITIES
Non- current 100 000 100 000
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Information to be presented
either in the SOFP or in the notes
Further sub-classifications depending upon IFRSs
and on size, nature and function of amounts
Classes of P,P&E
Receivables
Classifications of inventories
Provisions
Classes of equity capital and reserves
(IAS 1, p 77 78)
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Disclosure either in SOFP or SOCIE
or notes
For each class of share capital
Number authorised
Number issued
PV, or that shares are NPV
Reconciliation of number of shares at beginning and end of
year
Rights and restrictions
Description of each reserve
(IAS 1, p79)
Example
Sainsburys 2011 FS, Note 23
28
Statement of comprehensive
income
Present all items of income and expense recognised in a
period
In a single statement of comprehensive income
In two statements
Components of profit or loss (I/S)
Profit or loss +/- components of comprehensive income (SOCI)
(IAS 1, p81)
All items of income and expense recognised in a period
included in computation of profit or loss for period,
except
Items recognised outside profit / loss (IAS 8)
Items that meet definition of income / expense and excluded from
profit / loss
Revaluation of PP&E
(IAS 1, p88 89)
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Information to be presented in the
statement of comprehensive income
Minimum line item disclosure
Revenue
Finance costs
Tax expense
Profit or loss for period
Components of other comprehensive income
Total comprehensive income
Allocations of
Profit or loss attributable to
Minority interest
Owners of the parent
Total comprehensive income attributable to
Minority interest
Owners of the parent
(IAS 1,p 82 87)
Example
Sainsburys 2010 FS - I/S and SOCI, pg 50, 51
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Other comprehensive income
Components (p7)
(a) Changes in revaluation surplus
Presented net of related tax effects
SOCI
Sales
(COS)
(Operating expenses)
(Finance costs)
Profit before tax
(Taxation)
Profit for the period
Other comprehensive income
Revaluation
Total comprehensive income
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Information to be presented in the
SOCI or in notes
Material items of income and expense are disclosed separately (p97)
Circumstances include
Write-down of inventories to NRV and of PP&E to RA
Disposals of PP&E
Litigation settlements
Analysis of expenses by nature or by function
Nature of expenses method
Such as purchases, depreciation, staff costs, other
Function of expenses
COS
Distribution costs
Administration costs
Other operating costs
When classifying expenses by function, disclosure required of nature
of certain expenses depreciation / amortisationand employee
benefits (p104)
(IAS 1, p 97 105)
Example
Sainsburys FS 2011, Note 5, Operating profit
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Statement of changes in equity
IASB considers it useful to separate changes in
equity arising from
Transactions with owners in their capacity as owners
Other changes in equity (reflected in TCI)
Thus
Owner changes in equity presented in SOCIE
Non-owner changes in equity presented in SOCI
(IAS 1, p106 110)
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Information to be presented in the
statement of changes in equity
Total comprehensive income for period
Effects of retrospective application ito IAS 8
For each component of equity, reconciliation between
carrying amount at bop and eop, separately disclosing
Profit or loss
Each item of OCI
Transactions with owners in their capacity as owners
Contributions
Distributions
Dividends
And related amount per share (in SOCIE or in notes)
(IAS 1, p106 & 107)
Example
Sainsburys FS 2011, SOCIE, pg 54
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Notes
Order of notes
Statement of compliance (p16)
Accounting policies (p117)
Measurement basis
Other accounting policies
Supporting notes for items in SOFP, SOCI, SOCIE and
SOCF
Other
Contingent liabilities (IAS 37)
Non-financial
Dividends not recognised (p137)
Dividends proposed or declared that are not recognised as a
distribution andrelated amount per share
Cumulative preference dividends not recognised
(IAS 1, p112 138)
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10 Dividend
After the balance sheet date, a final dividend of 10.80 pence per share (2009:
10.20 pence per share) was proposed by the Directors in respect of the 52 weeks to
19 March 2011, resulting in a total final proposed dividend of 201million (2009:
189million). The proposed final dividend has not been included as a liability
at 19 March 2011.
Reading
IAS 1
Collins & McKeith, Financial Accounting & Reporting
1.3 Preparation of company annual accounts
1.4 Preparing company financial statements for
internal use
1.6 Presentation of financial statements
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