Professional Documents
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The objective of IAS 1 (2007) is to prescribe the basis for presentation of general conclude that compliance with an IFRS requirement would be so misleading that it
purpose financial statements, to ensure comparability both with the entity's financial would conflict with the objective of financial statements set out in the Framework. In
statements of previous periods and with the financial statements of other entities. such a case, the entity is required to depart from the IFRS requirement, with
IAS 1 sets out the overall requirements for the presentation of financial statements, detailed disclosure of the nature, reasons, and impact of the departure. [IAS 1.19-
guidelines for their structure and minimum requirements for their content. [IAS 1.1] 21]
Standards for recognising, measuring, and disclosing specific transactions are
addressed in other Standards and Interpretations. [IAS 1.3] Going concern
The Conceptual Framework notes that financial statements are normally prepared
Scope assuming the entity is a going concern and will continue in operation for the
IAS 1 applies to all general purpose financial statements that are prepared and foreseeable future. [Conceptual Framework, paragraph 4.1]
presented in accordance with International Financial Reporting Standards (IFRSs). IAS 1 requires management to make an assessment of an entity's ability to
[IAS 1.2] continue as a going concern. If management has significant concerns about the
General purpose financial statements are those intended to serve users who are entity's ability to continue as a going concern, the uncertainties must be disclosed. If
not in a position to require financial reports tailored to their particular information management concludes that the entity is not a going concern, the financial
needs. [IAS 1.7] statements should not be prepared on a going concern basis, in which case IAS 1
requires a series of disclosures. [IAS 1.25]
Objective of financial statements
The objective of general purpose financial statements is to provide information Accrual basis of accounting
about the financial position, financial performance, and cash flows of an entity that IAS 1 requires that an entity prepare its financial statements, except for cash flow
is useful to a wide range of users in making economic decisions. To meet that information, using the accrual basis of accounting. [IAS 1.27]
objective, financial statements provide information about an entity's: [IAS 1.9]
assets Consistency of presentation
The presentation and classification of items in the financial statements shall be
liabilities 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. [IAS 1.45]
equity
Materiality and aggregation
Each material class of similar items must be presented separately in the financial
income and expenses, including gains and losses
statements. Dissimilar items may be aggregated only if the are individually
immaterial. [IAS 1.29]
contributions by and distributions to owners (in their capacity as However, information should not be obscured by aggregating or by providing
owners) immaterial information, materiality considerations apply to the all parts of the
financial statements, and even when a standard requires a specific disclosure,
cash flows. materiality considerations do apply. [IAS 1.30A-31]*
That information, along with other information in the notes, assists users of financial * Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
statements in predicting the entity's future cash flows and, in particular, their timing
and certainty. Offsetting
Assets and liabilities, and income and expenses, may not be offset unless required
Components of financial statements or permitted by an IFRS. [IAS 1.32]
A complete set of financial statements includes: [IAS 1.10]
a statement of financial position (balance sheet) at the end of the Comparative information
period IAS 1 requires that comparative information to be disclosed in respect of the
previous period for all amounts reported in the financial statements, both on the
a statement of profit or loss and other comprehensive income for the face of the financial statements and in the notes, unless another Standard requires
period (presented as a single statement, or by presenting the profit or loss section otherwise. Comparative information is provided for narrative and descriptive where
in a separate statement of profit or loss, immediately followed by a statement it is relevant to understanding the financial statements of the current period. [IAS
presenting comprehensive income beginning with profit or loss) 1.38]
An entity is required to present at least two of each of the following primary financial
a statement of changes in equity for the period statements: [IAS 1.38A]
statement of financial position*
a statement of cash flows for the period
statement of profit or loss and other comprehensive income
notes, comprising a summary of significant accounting policies and
other explanatory notes separate statements of profit or loss (where presented)
cash and cash equivalents (unless restricted). par value (or that shares do not have a par value)
All other assets are non-current. [IAS 1.66]
Current liabilitiesare those: [IAS 1.69] a reconciliation of the number of shares outstanding at the beginning
expected to be settled within the entity's normal operating cycle and the end of the period
due to be settled within 12 months treasury shares, including shares held by subsidiaries and associates
for which the entity does not have an unconditional right to defer shares reserved for issuance under options and contracts
settlement beyond 12 months (settlement by the issue of equity instruments does
not impact classification). a description of the nature and purpose of each reserve within equity.
Other liabilities are non-current. Additional disclosures are required in respect of entities without share capital and
where an entity has reclassified puttable financial instruments. [IAS 1.80-80A]
When a long-term debt is expected to be refinanced under an existing loan facility,
and the entity has the discretion to do so, the debt is classified as non-current, even Statement of profit or loss and other comprehensive income
if the liability would otherwise be due within 12 months. [IAS 1.73]
If a liability has become payable on demand because an entity has breached an Concepts of profit or loss and comprehensive income
undertaking under a long-term loan agreement on or before the reporting date, the Profit or loss is defined as "the total of income less expenses, excluding the
liability is current, even if the lender has agreed, after the reporting date and before components of other comprehensive income". Other comprehensive income is
the authorisation of the financial statements for issue, not to demand payment as a defined as comprising "items of income and expense (including reclassification
consequence of the breach. [IAS 1.74] However, the liability is classified as non- adjustments) that are not recognised in profit or loss as required or permitted by
current if the lender agreed by the reporting date to provide a period of grace other IFRSs". Total comprehensive income is defined as "the change in equity
ending at least 12 months after the end of the reporting period, within which the during a period resulting from transactions and other events, other than those
entity can rectify the breach and during which the lender cannot demand immediate changes resulting from transactions with owners in their capacity as owners". [IAS
repayment. [IAS 1.75] 1.7]
Line items
The line items to be included on the face of the statement of financial position are:
[IAS 1.54] Comprehensive Income = Profit + Other
(a) property, plant and equipment for the period or Loss Comprehensive Income
(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (h), and (i)) All items of income and expense recognised in a period must be included in profit or
(e) investments accounted for using the equity method loss unless a Standard or an Interpretation requires otherwise. [IAS 1.88] Some
(f) biological assets IFRSs require or permit that some components to be excluded from profit or loss
(g) inventories and instead to be included in other comprehensive income.
(h) trade and other receivables
Examples of items recognised outside of profit or loss
(i) cash and cash equivalents
(j) assets held for sale
(k) trade and other payables Changes in revaluation surplus where the revaluation method
(l) provisions is used under IAS 16 Property, Plant and Equipment and IAS 38 Intangible
(m) financial liabilities (excluding amounts shown under (k) and (l)) Assets
(n) current tax liabilities and current tax assets, as defined in IAS 12
(o) deferred tax liabilities and deferred tax assets, as defined in IAS 12 Remeasurements of a net defined benefit liability or asset
(p) liabilities included in disposal groups recognised in accordance with IAS 19 Employee Benefits (2011)
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent. Exchange differences from translating functional currencies
Additional line items, headings and subtotals may be needed to fairly present the into presentation currency in accordance with IAS 21 The Effects of
entity's financial position. [IAS 1.55] Changes in Foreign Exchange Rates
When an entity presents subtotals, those subtotals shall be comprised of line items
made up of amounts recognised and measured in accordance with IFRS; be
Other requirements
Gains and losses on remeasuring available-for-sale financial Additional line items may be needed to fairly present the entity's results of
assets in accordance with IAS 39 Financial Instruments: Recognition and operations. [IAS 1.85]
Measurement Items cannot be presented as 'extraordinary items' in the financial statements or in
the notes. [IAS 1.87]
The effective portion of gains and losses on hedging Certain items must be disclosed separately either in the statement of
instruments in a cash flow hedge under IAS 39 or IFRS 9 Financial comprehensive income or in the notes, if material, including: [IAS 1.98]
Instruments write-downs of inventories to net realisable value or of property, plant
and equipment to recoverable amount, as well as reversals of such write-downs
Gains and losses on remeasuring an investment in equity
instruments where the entity has elected to present them in other restructurings of the activities of an entity and reversals of any
comprehensive income in accordance with IFRS 9 provisions for the costs of restructuring
The effects of changes in the credit risk of a financial liability disposals of items of property, plant and equipment
designated as at fair value through profit and loss under IFRS 9.
disposals of investments
In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors requires the correction of errors and the effect of changes in accounting
policies to be recognised outside profit or loss for the current period. [IAS 1.89] discontinuing operations
o non-financial disclosures, such as the entity's financial risk if it is part of a group, the name of its parent and the ultimate parent of
management objectives and policies (see IFRS 7 Financial Instruments: the group
Disclosures)
* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016, clarifies if it is a limited life entity, information regarding the length of the life
this order just to be an example of how notes can be ordered and adds additional
examples of possible ways of ordering the notes to clarify that understandability and Terminology
comparability should be considered when determining the order of the notes. The 2007 comprehensive revision to IAS 1 introduced some new terminology.
Other disclosures 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
Judgements and key assumptions amendments. IAS 1.8 states: "Although this Standard uses the terms 'other
An entity must disclose, in the summary of significant accounting policies or other comprehensive income', 'profit or loss' and 'total comprehensive income', an entity
notes, the judgements, apart from those involving estimations, that management may use other terms to describe the totals as long as the meaning is clear. For
has made in the process of applying the entity's accounting policies that have the example, an entity may use the term 'net income' to describe profit or loss." Also,
most significant effect on the amounts recognised in the financial statements. [IAS IAS 1.57(b) states: "The descriptions used and the ordering of items or aggregation
1.122] of similar items may be amended according to the nature of the entity and its
Examples cited in IAS 1.123 include management's judgements in determining: transactions, to provide information that is relevant to an understanding of the
when substantially all the significant risks and rewards of ownership of entity's financial position."
financial assets and lease assets are transferred to other entities
Term before 2007 Term as amended by IAS 1 (2007)
whether, in substance, particular sales of goods are financing revision of IAS 1
arrangements and therefore do not give rise to revenue.
An entity must also disclose, in the notes, information about the key assumptions balance sheet statement of financial position
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 cash flow statement statement of cash flows
1.125] These disclosures do not involve disclosing budgets or forecasts. [IAS 1.130]
income statement statement of comprehensive income
Dividends (income statement is retained in case
In addition to the distributions information in the statement of changes in equity (see of a two-statement approach)
above), the following must be disclosed in the notes: [IAS 1.137]
the amount of dividends proposed or declared before the financial recognised in the income recognised in profit or loss
statements were authorised for issue but which were not recognised as a statement
distribution to owners during the period, and the related amount per share
the amount of any cumulative preference dividends not recognised. recognised [directly] in recognised in other comprehensive
equity (only for OCI income
components)
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 recognised [directly] in recognised outside profit or loss (either
1.135] equity (for recognition both in OCI or equity)
qualitative information about the entity's objectives, policies and in OCI and equity)
processes for managing capital, including>
o description of capital it manages removed from equity and reclassified from equity to profit or loss
recognised in profit or loss as a reclassification adjustment
o nature of external capital requirements, if any ('recycling')
storage costs
selling costs
IAS 7
Interest expense xx,xxx
The objective of IAS 7 is to require the presentation of information about the
historical changes in cash and cash equivalents of an entity by means of a
statement of cash flows, which classifies cash flows during the period according to Less Interest accrued but not yet paid xx,xxx
operating, investing, and financing activities.
Fundamental principle in IAS 7 Interest paid xx,xxx
All entities that prepare financial statements in conformity with IFRSs are required
to present a statement of cash flows. [IAS 7.1]
The statement of cash flows analyses changes in cash and cash equivalents during Income taxes paid xx,xxx
a period. Cash and cash equivalents comprise cash on hand and demand deposits,
together with short-term, highly liquid investments that are readily convertible to a Net cash from operating activities xx,xxx
known amount of cash, and that are subject to an insignificant risk of changes in
value. Guidance notes indicate that an investment normally meets the definition of a the exchange rate used for translation of transactions denominated in a
cash equivalent when it has a maturity of three months or less from the date of foreign currency should be the rate in effect at the date of the cash flows [IAS 7.25]
acquisition. Equity investments are normally excluded, unless they are in substance
a cash equivalent (e.g. preferred shares acquired within three months of their cash flows of foreign subsidiaries should be translated at the exchange
specified redemption date). Bank overdrafts which are repayable on demand and rates prevailing when the cash flows took place [IAS 7.26]
which form an integral part of an entity's cash management are also included as a
component of cash and cash equivalents. [IAS 7.7-8] as regards the cash flows of associates, joint ventures, and
Presentation of the Statement of Cash Flows subsidiaries, where the equity or cost method is used, the statement of cash flows
Cash flows must be analysed between operating, investing and financing activities. should report only cash flows between the investor and the investee; where
[IAS 7.10] proportionate consolidation is used, the cash flow statement should include the
Key principles specified by IAS 7 for the preparation of a statement of cash flows venturer's share of the cash flows of the investee [IAS 7.37]
are as follows:
operating activities are the main revenue-producing activities of the aggregate cash flows relating to acquisitions and disposals of
entity that are not investing or financing activities, so operating cash flows include subsidiaries and other business units should be presented separately and classified
cash received from customers and cash paid to suppliers and employees [IAS 7.14] as investing activities, with specified additional disclosures. [IAS 7.39] The
aggregate cash paid or received as consideration should be reported net of cash
investing activities are the acquisition and disposal of long-term and cash equivalents acquired or disposed of [IAS 7.42]
assets and other investments that are not considered to be cash equivalents [IAS
7.6] cash flows from investing and financing activities should be reported
gross by major class of cash receipts and major class of cash payments except for
financing activities are activities that alter the equity capital and the following cases, which may be reported on a net basis: [IAS 7.22-24]
borrowing structure of the entity [IAS 7.6] o cash receipts and payments on behalf of customers (for
example, receipt and repayment of demand deposits by banks, and receipts
interest and dividends received and paid may be classified as collected on behalf of and paid over to the owner of a property)
operating, investing, or financing cash flows, provided that they are classified
consistently from period to period [IAS 7.31] o cash receipts and payments for items in which the turnover
is quick, the amounts are large, and the maturities are short, generally less than
cash flows arising from taxes on income are normally classified as three months (for example, charges and collections from credit card customers, and
operating, unless they can be specifically identified with financing or investing purchase and sale of investments)
activities [IAS 7.35]
o cash receipts and payments relating to deposits by
for operating cash flows, the direct method of presentation is financial institutions
encouraged, but the indirect method is acceptable [IAS 7.18]
The direct method shows each major class of gross cash receipts and gross cash o cash advances and loans made to customers and
payments. The operating cash flows section of the statement of cash flows under repayments thereof
the direct method would appear something like this: investing and financing transactions which do not require the use of
cash should be excluded from the statement of cash flows, but they should be
Cash receipts from customers xx,xxx separately disclosed elsewhere in the financial statements [IAS 7.43]
Cash paid to suppliers xx,xxx entities shall provide disclosures that enable users of financial
statements to evaluate changes in liabilities arising from financing activities [IAS
Cash paid to employees xx,xxx 7.44A-44E]*
The indirect method adjusts accrual basis net profit or loss for the
effects of non-cash transactions. The operating cash flows section of the statement
of cash flows under the indirect method would appear something like this:
Profit before interest and income taxes xx,xxx
International Financial Reporting Standardsare standards and However, if it is impracticable to determine either the period-specific
interpretations adopted by the International Accounting Standards Board (IASB). effects or the cumulative effect of the change for one or more prior periods
They comprise: presented, the entity shall apply the new accounting policy to the carrying amounts
o International Financial Reporting Standards (IFRSs) of assets and liabilities as at the beginning of the earliest period for which
retrospective application is practicable, which may be the current period, and shall
o International Accounting Standards (IASs) make a corresponding adjustment to the opening balance of each affected
component of equity for that period. [IAS 8.24]
o Interpretations developed by the International Financial
Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Also, if it is impracticable to determine the cumulative effect, at the
Committee (SIC) and approved by the IASB. beginning of the current period, of applying a new accounting policy to all prior
Materiality. Omissions or misstatements of items are material if they periods, the entity shall adjust the comparative information to apply the new
could, by their size or nature, individually or collectively, influence the economic accounting policy prospectively from the earliest date practicable. [IAS 8.25]
decisions of users taken on the basis of the financial statements.
Disclosures relating to changes in accounting policies
Prior period errors are omissions from, and misstatements in, an
entity's financial statements for one or more prior periods arising from a failure to
use, or misuse of, reliable information that was available and could reasonably be Disclosures relating to changes in accounting policy caused by a new standard or
expected to have been obtained and taken into account in preparing those interpretation include: [IAS 8.28]
statements. Such errors result from mathematical mistakes, mistakes in applying
accounting policies, oversights or misinterpretations of facts, and fraud. the title of the standard or interpretation causing the change
Selection and application of accounting policies the nature of the change in accounting policy
Errors Going concern issues arising after end of the reporting period
The general principle in IAS 8 is that an entity must correct all material prior period An entity shall not prepare its financial statements on a going concern basis if
errors retrospectively in the first set of financial statements authorised for issue after management determines after the end of the reporting period either that it intends
their discovery by: [IAS 8.42] to liquidate the entity or to cease trading, or that it has no realistic alternative but to
do so. [IAS 10.14]
restating the comparative amounts for the prior period(s) presented in
which the error occurred; or Disclosure
if the error occurred before the earliest prior period presented, restating
Non-adjusting events should be disclosed if they are of such importance that non-
the opening balances of assets, liabilities and equity for the earliest prior period
disclosure would affect the ability of users to make proper evaluations and
presented.
decisions. The required disclosure is (a) the nature of the event and (b) an estimate
of its financial effect or a statement that a reasonable estimate of the effect cannot
However, if it is impracticable to determine the period-specific effects of an error on be made. [IAS 10.21]
comparative information for one or more prior periods presented, the entity must A company should update disclosures that relate to conditions that existed at the
restate the opening balances of assets, liabilities, and equity for the earliest period end of the reporting period to reflect any new information that it receives after the
for which retrospective restatement is practicable (which may be the current reporting period about those conditions. [IAS 10.19]
period). [IAS 8.44] Companies must disclose the date when the financial statements were authorised
Further, if it is impracticable to determine the cumulative effect, at the beginning of for issue and who gave that authorisation. If the enterprise's owners or others have
the current period, of an error on all prior periods, the entity must restate the the power to amend the financial statements after issuance, the enterprise must
comparative information to correct the error prospectively from the earliest date disclose that fact. [IAS 10.17]
practicable. [IAS 8.45]
The following formula can be used in the calculation of deferred taxes arising from
Objective of IAS 12 unused tax losses or unused tax credits:
Deferred Tax Asset = Unused tax loss or unused tax credits X Tax rates
The objective of IAS 12 (1996) is to prescribe the accounting treatment for income
taxes.
In meeting this objective, IAS 12 notes the following:
o liabilities arising from initial recognition of goodwill [IAS 12.15(a)] Amount of income tax to recognise
o liabilities arising from the initial recognition of an asset/liability other The following formula summarises the amount of tax to be recognised in an
than in a business combination which, at the time of the transaction, does accounting period:
not affect either the accounting or the taxable profit [IAS 12.15(b)]
o liabilities arising from temporary differences associated with
investments in subsidiaries, branches, and associates, and interests in joint
arrangements, but only to the extent that the entity is able to control the Tax Recognize = Current tax for the Period + Movement in deferred Tax balances
timing of the reversal of the differences and it is probable that the reversal for the period for the period
will not occur in the foreseeable future. [IAS 12.39]