Overview

IAS 1 Presentation of Financial Statements sets out the overall requirements for financial statements, including
how they should be structured, the minimum requirements for their content and overriding concepts such as
going concern, the accrual basis of accounting and the current/non-current distinction. The standard requires a
complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and
other comprehensive income, a statement of changes in equity and a statement of cash flows.
IAS 1 was reissued in September 2007 and applies to annual periods beginning on or after 1 January 2009.

History of IAS 1

Date Development Comments

March 1974 Exposure Draft E1 Disclosure of Accounting Policies

January 1975 IAS 1 Disclosure of Accounting Policies issued Operative for periods beginning
on or after 1 January 1975

June 1975 Exposure Draft E5 Information to Be Disclosed in

Financial Statements published

October 1976 IAS 5 Information to Be Disclosed in Financial Operative for periods beginning
Statements issued on or after 1 January 1975

July 1978 Exposure Draft E14 Current Assets and Current

Liabilities published

November 1979 IAS 13 Presentation of Current Assets and Current Operative for periods beginning
Liabilities issued on or after 1 January 1981

1994 IAS 1, IAS 5, and IAS 13 reformatted

July 1996 Exposure Draft E53 Presentation of Financial

Statements published

August 1997 IAS 1 Presentation of Financial Statements (1997) Operative for periods beginning
issued on or after 1 July 1998
(Supersedes IAS 1 (1975), IAS 5, and IAS 13 (1979))

18 December 2003 IAS 1 Presentation of Financial Statements (2003) Effective for annual periods
issued beginning on or after 1 January
2005

18 August 2005 Amended by Amendment to IAS 1 Capital Effective for annual periods
Disclosures beginning on or after 1 January
2007

16 March 2006 Exposure Draft Proposed Amendments to IAS 1 A Comment deadline 17 July 2006
Revised Presentation published
22 June 2006 Exposure Draft Financial Instruments Puttable at Comment deadline 23 October
Fair Value and Obligations Arising on 2006
Liquidation published

6 September 2007 IAS 1 Presentation of Financial Statements (2007) Effective for annual periods
issued beginning on or after 1 January
2009

14 February 2008 Amended by Puttable Financial Instruments and Effective for annual reporting
Obligations Arising on Liquidation periods beginning on or after 1
January 2009

22 May 2008 Amended by Annual Improvements to IFRSs Effective for annual reporting
2007 (classification of derivatives as current or non- periods beginning on or after 1
current) January 2009

16 April 2009 Amended by Improvements to IFRSs Effective for annual periods

2009 (classification of liabilities as current) beginning on or after 1 January
2010

6 May 2010 Amended by Improvements to IFRSs Effective for annual periods

2010 (clarification of statement of changes in beginning on or after 1 January
equity) 2011

27 May 2010 Exposure Draft ED/2010/5 Presentation of Items of Comment deadline 30

Other Comprehensive Income published September 2010

16 June 2011 Amended by Presentation of Items of Other Effective for annual periods
Comprehensive Income beginning on or after 1 July
2012

17 May 2012 Amended by Annual Improvements 2009-2011 Effective for annual periods
Cycle (comparative information) beginning on or after 1 January
2013

18 December 2014 Amended by Disclosure Initiative (Amendments to Effective for annual periods
IAS 1) (project history) beginning on or after 1 January
2016

Related Interpretations

IAS 1 (2003) superseded SIC-18 Consistency - Alternative Methods

IFRIC 17 Distributions of Non-cash Assets to Owners
SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease
SIC-29 Disclosure - Service Concession Arrangements

Amendments under consideration

IAS 1 Disclosures about going concern

 IAS 1 Classification of liabilities
Disclosure initiative Principles of disclosure (research project)
Disclosure initiative Materiality (research project)

Summary of IAS 1

Objective of IAS 1
The objective of IAS 1 (2007) 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. IAS 1 sets out the overall requirements for the presentation of financial statements,
guidelines for their structure and minimum requirements for their content. [IAS 1.1] Standards for recognising,
measuring, and disclosing specific transactions are addressed in other Standards and Interpretations. [IAS 1.3]

Scope
IAS 1 applies to all general purpose financial statements that are prepared and presented in accordance with
International Financial Reporting Standards (IFRSs). [IAS 1.2]

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. [IAS 1.7]

Objective 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: [IAS 1.9]

assets
liabilities
equity
income and expenses, including gains and losses
contributions by and distributions to owners (in their capacity as 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 includes: [IAS 1.10]

a statement of financial position (balance sheet) at the end of the period

a statement of profit or loss and other comprehensive income for the period (presented as a single
statement, or by presenting the profit or loss section in a separate statement of profit or loss,
immediately followed by a statement presenting comprehensive income beginning with profit or loss)
a statement of changes in equity for the period
a statement of cash flows for the period
notes, comprising a summary of significant accounting policies and other explanatory notes
comparative information prescribed by the standard.
An entity may use titles for the statements other than those stated above. All financial statements are required to
be presented with equal prominence. [IAS 1.10]

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.

Reports that are presented outside of the financial statements including financial reviews by management,
environmental reports, and value added statements are outside the scope of IFRSs. [IAS 1.14]

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. [IAS 1.15]
IAS 1 requires an entity whose financial statements comply with IFRSs to make an explicit and unreserved
statement of such compliance in the notes. Financial statements cannot be described as complying with IFRSs
unless they comply with all the requirements of IFRSs (which includes International Financial Reporting Standards,
International Accounting Standards, IFRIC Interpretations and SIC Interpretations). [IAS 1.16]

Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes
or explanatory material. [IAS 1.18]

IAS 1 acknowledges that, in extremely rare circumstances, management may conclude that compliance with an
IFRS requirement would be so misleading that it would conflict with the objective of financial statements set out in
the Framework. In such a case, the entity is required to depart from the IFRS requirement, with detailed disclosure
of the nature, reasons, and impact of the departure. [IAS 1.19-21]

Going concern
The Conceptual Framework notes that financial statements are normally prepared assuming the entity is a going
concern and will continue in operation for the foreseeable future. [Conceptual Framework, paragraph 4.1]

IAS 1 requires management to make an assessment of an entity's ability to continue as 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. [IAS 1.25]

Accrual basis of accounting

IAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual
basis of accounting. [IAS 1.27]

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. [IAS 1.45]

Materiality and aggregation

Each material class of similar items must be presented separately in the financial statements. Dissimilar items may
be aggregated only if the are individually immaterial. [IAS 1.29]
However, information should not be obscured by aggregating or by providing immaterial information, materiality
considerations apply to the all parts of the financial statements, and even when a standard requires a specific
disclosure, materiality considerations do apply. [IAS 1.30A-31]*

* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.

Offsetting
Assets and liabilities, and income and expenses, may not be offset unless required or permitted by an IFRS. [IAS
1.32]

Comparative information
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 face of the financial statements and in the notes, unless another
Standard requires otherwise. Comparative information is provided for narrative and descriptive where it is
relevant to understanding the financial statements of the current period. [IAS 1.38]

An entity is required to present at least two of each of the following primary financial statements: [IAS 1.38A]

statement of financial position*

statement of profit or loss and other comprehensive income
separate statements of profit or loss (where presented)
statement of cash flows
statement of changes in equity
related notes for each of the above items.
* A third statement of financial position is required to be presented if the entity retrospectively applies an
accounting policy, restates items, or reclassifies items, and those adjustments had a material effect on the
information in the statement of financial position at the beginning of the comparative period. [IAS 1.40A]

Where comparative amounts are changed or reclassified, various disclosures are required. [IAS 1.41]

Structure and content of financial statements in general

IAS 1 requires an entity to clearly identify: [IAS 1.49-51]

the financial statements, which must be distinguished from other information in a published document
each financial statement and the notes to the financial statements.
In addition, the following information must be displayed prominently, and repeated as necessary: [IAS 1.51]

the name of the reporting entity and any change in the name
whether the financial statements are a group of entities or an individual entity
information about the reporting period
the presentation currency (as defined by IAS 21 The Effects of Changes in Foreign Exchange Rates)
the level of rounding used (e.g. thousands, millions).

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 state that amounts are not entirely comparable. [IAS 1.36]
Statement of financial position (balance sheet)
Current and non-current classification
An entity must normally present a classified statement of financial position, separating current and non-current
assets and liabilities, unless presentation based on liquidity provides information that is reliable. [IAS 1.60] In
either case, if an asset (liability) category combines amounts that will be received (settled) after 12 months with
assets (liabilities) that will be received (settled) within 12 months, note disclosure is required that separates the
longer-term amounts from the 12-month amounts. [IAS 1.61]

Current assetsare assets that are: [IAS 1.66]

expected to be realised in the entity's normal operating cycle

held primarily for the purpose of trading
expected to be realised within 12 months after the reporting period
cash and cash equivalents (unless restricted).
All other assets are non-current. [IAS 1.66]
Current liabilitiesare those: [IAS 1.69]

expected to be settled within the entity's normal operating cycle

held for purpose of trading
due to be settled within 12 months
for which the entity does not have an unconditional right to defer settlement beyond 12 months
(settlement by the issue of equity instruments does not impact classification).
Other liabilities are non-current.

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 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 undertaking under a long-term
loan agreement on or before the reporting date, the liability is current, even if the lender has agreed, after the
reporting date and before the authorisation of the financial statements for issue, not to demand payment as a
consequence of the breach. [IAS 1.74] However, the liability is classified as non-current if the lender agreed by the
reporting date to provide a period of grace ending at least 12 months after the end of the reporting period, within
which the entity can rectify the breach and during which the lender cannot demand immediate repayment. [IAS
1.75]

Line items
The line items to be included on the face of the statement of financial position are: [IAS 1.54]

(a) property, plant and equipment

(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (h), and (i))
(e) investments accounted for using the equity method
(f) biological assets
(g) inventories
(h) trade and other receivables
(i) cash and cash equivalents
(j) assets held for sale
(k) trade and other payables
(l) provisions
(m)financial liabilities (excluding amounts shown under (k) and (l))
(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
(p) liabilities included in disposal groups
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent.
Additional line items, headings and subtotals may be needed to fairly present the entity's financial position. [IAS
1.55]

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 presented and labelled in a clear and understandable
manner; be consistent from period to period; and not be displayed with more prominence than the required
subtotals and totals. [IAS 1.55A]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
Further sub-classifications of line items presented are made in the statement or in the notes, for example: [IAS
1.77-78]:

classes of property, plant and equipment

disaggregation of receivables
disaggregation of inventories in accordance with IAS 2 Inventories
disaggregation of provisions into employee benefits and other items
classes of equity and reserves.
Format of statement
IAS 1 does not prescribe the format of the statement of financial position. 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.

Share capital and reserves

Regarding issued share capital and reserves, the following disclosures are required: [IAS 1.79]

numbers of shares authorised, issued and fully paid, and issued but not fully paid
par value (or that shares do not have a par value)
a reconciliation of the number of shares outstanding at the beginning and the end of the period
description of rights, preferences, and restrictions
treasury shares, including shares held by subsidiaries and associates
shares reserved for issuance under options and contracts
a description of the nature and purpose of each reserve within equity.
Additional disclosures are required in respect of entities without share capital and where an entity has reclassified
puttable financial instruments. [IAS 1.80-80A]

Statement of profit or loss and other comprehensive income

Concepts of profit or loss and comprehensive income
Profit or loss is defined as "the total of income less expenses, excluding the components of other comprehensive
income". Other comprehensive income is defined as comprising "items of income and expense (including
reclassification adjustments) that are not recognised in profit or loss as required or permitted by other
 IFRSs". Total comprehensive income is defined as "the change in equity during a period resulting from transactions
and other events, other than those changes resulting from transactions with owners in their capacity as owners".
[IAS 1.7]

Comprehensive income = Profit + Other

for the period or loss comprehensive income

All items of income and expense recognised in a period must be included in profit or loss unless a Standard or an
Interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit that some components to be excluded
from profit or loss and instead to be included in other comprehensive income.

Examples of items recognised outside of profit or loss

Changes in revaluation surplus where the revaluation method is used under IAS 16 Property, Plant and
Equipment and IAS 38 Intangible Assets
Remeasurements of a net defined benefit liability or asset recognised in accordance
with IAS 19 Employee Benefits (2011)
Exchange differences from translating functional currencies into presentation currency in accordance
with IAS 21 The Effects of Changes in Foreign Exchange Rates
Gains and losses on remeasuring available-for-sale financial assets in accordance with IAS 39 Financial
Instruments: Recognition and Measurement
The effective portion of gains and losses on hedging instruments in a cash flow hedge under IAS 39
or IFRS 9 Financial Instruments
Gains and losses on remeasuring an investment in equity instruments where the entity has elected to
present them in other comprehensive income in accordance with IFRS 9
The effects of changes in the credit risk of a financial liability designated as at fair value through profit
and loss under IFRS 9.

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]
Choice in presentation and basic requirements
An entity has a choice of presenting:

a single statement of profit or loss and other comprehensive income, with profit or loss and other
comprehensive income presented in two sections, or
two statements:
o a separate statement of profit or loss
o a statement of comprehensive income, immediately following the statement of profit or
loss and beginning with profit or loss [IAS 1.10A]
The statement(s) must present: [IAS 1.81A]

profit or loss
total other comprehensive income
 comprehensive income for the period
an allocation of profit or loss and comprehensive income for the period between non-controlling
interests and owners of the parent.
Profit or loss section or statement
The following minimum line items must be presented in the profit or loss section (or separate statement of profit
or loss, if presented): [IAS 1.82-82A]

revenue
gains and losses from the derecognition of financial assets measured at amortised cost
finance costs
share of the profit or loss of associates and joint ventures accounted for using the equity method
certain gains or losses associated with the reclassification of financial assets
tax expense
a single amount for the total of discontinued items
Expenses recognised in profit or loss should be analysed either by nature (raw materials, staffing costs,
depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS 1.99] If an entity categorises by
function, then additional information on the nature of expenses at a minimum depreciation, amortisation and
employee benefits expense must be disclosed. [IAS 1.104]

Other comprehensive income section

The other comprehensive income section is required to present line items which are classified by their nature, and
grouped between those items that will or will not be reclassified to profit and loss in subsequent periods. [IAS
1.82A]

An entity's share of OCI of equity-accounted associates and joint ventures is presented in aggregate as single line
items based on whether or not it will subsequently be reclassified to profit or loss. [IAS 1.82A]*

* Clarified by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.

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 presented and labelled in a clear and understandable
manner; be consistent from period to period; not be displayed with more prominence than the required subtotals
and totals; and reconciled with the subtotals or totals required in IFRS. [IAS 1.85A-85B]*

* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.

Other requirements
Additional line items may be needed to fairly present the entity's results of operations. [IAS 1.85]

Items cannot be presented as 'extraordinary items' in the financial statements or in the notes. [IAS 1.87]

Certain items must be disclosed separately either in the statement of comprehensive income or in the notes, if
material, including: [IAS 1.98]

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
restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring
disposals of items of property, plant and equipment
disposals of investments
discontinuing operations
 litigation settlements
other reversals of provisions

Statement of cash flows

Rather than setting out separate requirements for presentation of the statement of cash flows, IAS 1.111 refers
to IAS 7 Statement of Cash Flows.

Statement of changes in equity

IAS 1 requires an entity to present a separate statement of changes in equity. The statement must show: [IAS
1.106]

total comprehensive income for the period, showing separately amounts attributable to owners of the
parent and to non-controlling interests
the effects of any retrospective application of accounting policies or restatements made in accordance
with IAS 8, separately for each component of other comprehensive income
reconciliations between the carrying amounts at the beginning and the end of the period for each
component of equity, separately disclosing:
o profit or loss
o other comprehensive income*
o transactions with owners, showing separately contributions by and distributions to owners
and changes in ownership interests in subsidiaries that do not result in a loss of control
* An analysis of other comprehensive income by item is required to be presented either in the statement or in the
notes. [IAS 1.106A]

The following amounts may also be presented on the face of the statement of changes in equity, or they may be
presented in the notes: [IAS 1.107]

amount of dividends recognised as distributions

the related amount per share.

Notes to the financial statements

The notes must: [IAS 1.112]

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
Notes are presented in a systematic manner and cross-referenced from the face of the financial statements to the
relevant note. [IAS 1.113]

IAS 1.114 suggests that the notes should normally be presented in the following order:*

a statement of compliance with IFRSs

a summary of significant accounting policies applied, including: [IAS 1.117]
o the measurement basis (or bases) used in preparing the financial statements
o the other accounting policies used that are relevant to an understanding of the financial
statements
 supporting information for items presented on the face of the statement of financial position (balance
sheet), statement(s) of profit or loss and other comprehensive income, statement of changes in equity
and statement of cash flows, in the order in which each statement and each line item is presented
other disclosures, including:
o contingent liabilities (see IAS 37) and unrecognised contractual commitments
o non-financial disclosures, such as the entity's financial risk management objectives and
policies (see IFRS 7 Financial Instruments: Disclosures)
* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016, clarifies 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 comparability should be considered when determining the order of the notes.

Other disclosures
Judgements and key assumptions
An entity must disclose, in the summary of significant accounting policies or other notes, the judgements, 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]

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>
o description of capital it manages
o nature of external capital requirements, if any
o 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.
Puttable financial instruments
IAS 1.136A requires the following additional disclosures if an entity has a puttable instrument that is classified as
an equity instrument:

summary quantitative data about the amount classified as equity

the entity's objectives, policies and processes for managing its obligation to repurchase or redeem the
instruments when required to do so by the instrument holders, including any changes from the
previous period
the expected cash outflow on redemption or repurchase of that class of financial instruments and
information about how the expected cash outflow on redemption or repurchase was determined.
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

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. IAS 1.8 states: "Although this Standard uses the terms 'other comprehensive income',
'profit or loss' and 'total comprehensive income', an entity may use other terms to describe the totals as long as
the meaning is clear. For example, an entity may use the term 'net income' to describe profit or loss." Also, IAS
1.57(b) states: "The descriptions used and the ordering of items or aggregation of similar items may be amended
according to the nature of the entity and its transactions, to provide information that is relevant to an
understanding of the entity's financial position."

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 recognised in other comprehensive income
components)

recognised [directly] in equity (for recognised outside profit or loss (either in OCI or equity)
recognition both in OCI and equity)
removed from equity and recognised in reclassified from equity to profit or loss as a reclassification
profit or loss ('recycling') 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

 Conceptual Framework for Financial Reporting 2010

History of the Framework

April 1989 Framework for the Preparation and Presentation of Financial Statements (the Framework)
was approved by the IASC Board

July 1989 Framework was published

April 2001 Framework adopted by the IASB.

September 2010 Conceptual Framework for Financial Reporting 2010 (the IFRS Framework) approved by the
IASB

Related Interpretations

None

Amendments under consideration by the IASB

IASB Project on Conceptual Framework.

Purpose and status of the Framework

The IFRS Framework describes the basic concepts that underlie the preparation and presentation of financial
statements for external users. The IFRS Framework serves as a guide to the Board in developing future IFRSs and as
a guide to resolving accounting issues that are not addressed directly in an International Accounting Standard or
International Financial Reporting Standard or Interpretation.
In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use
its judgement in developing and applying an accounting policy that results in information that is relevant and
reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria,
and measurement concepts for assets, liabilities, income, and expenses in the IFRS Framework. This elevation of
the importance of the [IFRS] Framework was added in the 2003 revisions to IAS 8.

The IFRS Framework

Scope
The IFRS Framework addresses:
the objective of financial reporting

the qualitative characteristics of useful financial information

the reporting entity

the definition, recognition and measurement of the elements from which financial statements are constructed
 concepts of capital and capital maintenance
[IFRS Framework, Scope]

Chapter 1: The Objective of general purpose financial reporting

The primary users of general purpose financial reporting are present and potential investors, lenders and other
creditors, who use that information to make decisions about buying, selling or holding equity or debt instruments
and providing or settling loans or other forms of credit. [F OB2]
The primary users need information about the resources of the entity not only to assess an entity's prospects for
future net cash inflows but also how effectively and efficiently management has discharged their responsibilities to
use the entity's existing resources (i.e., stewardship). [F OB4]
The IFRS Framework notes that general purpose financial reports cannot provide all the information that users
may need to make economic decisions. They will need to consider pertinent information from other sources as
well. [F OB6]
The IFRS Framework notes that other parties, including prudential and market regulators, may find general
purpose financial reports useful. However, the Board considered that the objectives of general purpose financial
reporting and the objectives of financial regulation may not be consistent. Hence, regulators are not considered a
primary user and general purpose financial reports are not primarily directed to regulators or other parties. [F
OB10 and F BC1.20-BC 1.23]
Information about a reporting entity's economic resources, claims, and changes in resources and claims
Economic resources and claims
Information about the nature and amounts of a reporting entity's economic resources and claims assists users to
assess that entity's financial strengths and weaknesses; to assess liquidity and solvency, and its need and ability to
obtain financing. Information about the claims and payment requirements assists users to predict how future cash
flows will be distributed among those with a claim on the reporting entity. [F OB13]
A reporting entity's economic resources and claims are reported in the statement of financial position. [See IAS
1.54-80A]
Changes in economic resources and claims
Changes in a reporting entity's economic resources and claims result from that entity's performance and from
other events or transactions such as issuing debt or equity instruments. Users need to be able to distinguish
between both of these changes. [F OB15]
Financial performance reflected by accrual accounting
Information about a reporting entity's financial performance during a period, representing changes in economic
resources and claims other than those obtained directly from investors and creditors, is useful in assessing the
entity's past and future ability to generate net cash inflows. Such information may also indicate the extent to
which general economic events have changed the entity's ability to generate future cash inflows. [F OB18-OB19]
The changes in an entity's economic resources and claims are presented in the statement of comprehensive
income. [See IAS 1.81-105]
Financial performance reflected by past cash flows
Information about a reporting entity's cash flows during the reporting period also assists users to assess the
entity's ability to generate future net cash inflows. This information indicates how the entity obtains and spends
cash, including information about its borrowing and repayment of debt, cash dividends to shareholders, etc. [F
OB20]
The changes in the entity's cash flows are presented in the statement of cash flows. [See IAS 7]
Changes in economic resources and claims not resulting from financial performance
Information about changes in an entity's economic resources and claims resulting from events and transactions
other than financial performance, such as the issue of equity instruments or distributions of cash or other assets to
shareholders is necessary to complete the picture of the total change in the entity's economic resources and
claims. [F OB21]
The changes in an entity's economic resources and claims not resulting from financial performance is presented in
the statement of changes in equity. [See IAS 1.106-110]

Chapter 2: The Reporting entity

The chapter on the Reporting Entity will be reconsidered as part of the IASB's comprehensive project on the
framework.

Chapter 3: Qualitative characteristics of useful financial information

The qualitative characteristics of useful financial reporting identify the types of information are likely to be most
useful to users in making decisions about the reporting entity on the basis of information in its financial report. The
qualitative characteristics apply equally to financial information in general purpose financial reports as well as to
financial information provided in other ways. [F QC1, QC3]
Financial information is useful when it is relevant and represents faithfully what it purports to represent. The
usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. [F QC4]
Fundamental qualitative characteristics
Relevance and faithful representation are the fundamental qualitative characteristics of useful financial
information. [F QC5]
Relevance
Relevant financial information is capable of making a difference in the decisions made by users. Financial
information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both.
The predictive value and confirmatory value of financial information are interrelated. [F QC6-QC10]
Materiality is an entity-specific aspect of relevance based on the nature or magnitude (or both) of the items to
which the information relates in the context of an individual entity's financial report. [F QC11]
Faithful representation
General purpose financial reports represent economic phenomena in words and numbers, To be useful, financial
information must not only be relevant, it must also represent faithfully the phenomena it purports to represent.
This fundamental characteristic seeks to maximise the underlying characteristics of completeness, neutrality and
freedom from error. [F QC12] Information must be both relevant and faithfully represented if it is to be useful. [F
QC17]
Enhancing qualitative characteristics
Comparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the
usefulness of information that is relevant and faithfully represented. [F QC19]
Comparability
Information about a reporting entity is more useful if it can be compared with a similar information about other
entities and with similar information about the same entity for another period or another date. Comparability
enables users to identify and understand similarities in, and differences among, items. [F QC20-QC21]
Verifiability
Verifiability helps to assure users that information represents faithfully the economic phenomena it purports to
represent. Verifiability means that different knowledgeable and independent observers could reach consensus,
although not necessarily complete agreement, that a particular depiction is a faithful representation. [F QC26]
Timeliness
Timeliness means that information is available to decision-makers in time to be capable of influencing their
decisions. [F QC29]
Understandability
Classifying, characterising and presenting information clearly and concisely makes it understandable. While some
phenomena are inherently complex and cannot be made easy to understand, to exclude such information would
make financial reports incomplete and potentially misleading. Financial reports are prepared for users who have a
reasonable knowledge of business and economic activities and who review and analyse the information with
diligence. [F QC30-QC32]
Applying the enhancing qualitative characteristics
Enhancing qualitative characteristics should be maximised to the extent necessary. However, enhancing qualitative
characteristics (either individually or collectively) render information useful if that information is irrelevant or not
represented faithfully. [F QC33]
The cost constraint on useful financial reporting
Cost is a pervasive constraint on the information that can be provided by general purpose financial reporting.
Reporting such information imposes costs and those costs should be justified by the benefits of reporting that
information. The IASB assesses costs and benefits in relation to financial reporting generally, and not solely in
 relation to individual reporting entities. The IASB will consider whether different sizes of entities and other factors
justify different reporting requirements in certain situations. [F QC35-QC39]

Chapter 4: The Framework: the remaining text

Chapter 4 contains the remaining text of the Framework approved in 1989. As the project to revise the Framework
progresses, relevant paragraphs in Chapter 4 will be deleted and replaced by new Chapters in the IFRS Framework.
Until it is replaced, a paragraph in Chapter 4 has the same level of authority within IFRSs as those in Chapters 1-3.
Underlying assumption
The IFRS Framework states that the going concern assumption is an underlying assumption. Thus, the financial
statements presume that an entity will continue in operation indefinitely or, if that presumption is not valid,
disclosure and a different basis of reporting are required. [F 4.1]
The elements of financial statements
Financial statements portray the financial effects of transactions and other events by grouping them into broad
classes according to their economic characteristics. These broad classes are termed the elements of financial
statements.
The elements directly related to financial position (balance sheet) are: [F 4.4]
Assets

Liabilities

Equity
The elements directly related to performance (income statement) are: [F 4.25]
Income

Expenses
The cash flow statement reflects both income statement elements and some changes in balance sheet elements.
Definitions of the elements relating to financial position
Asset. An asset is a resource controlled by the entity as a result of past events and from which future economic
benefits are expected to flow to the entity. [F 4.4(a)]

Liability. A liability is a present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits. [F 4.4(b)]

Equity. Equity is the residual interest in the assets of the entity after deducting all its liabilities. [F 4.4(c)]
Definitions of the elements relating to performance
Income. Income is increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to
contributions from equity participants. [F 4.25(a)]

Expense. Expenses are decreases in economic benefits during the accounting period in the form of outflows or
depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to
distributions to equity participants. [F 4.25(b)]
The definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary
activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends,
royalties and rent. Gains represent other items that meet the definition of income and may, or may not, arise in
the course of the ordinary activities of an entity. Gains represent increases in economic benefits and as such are no
different in nature from revenue. Hence, they are not regarded as constituting a separate element in the IFRS
Framework. [F 4.29 and F 4.30]
The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary
activities of the entity. Expenses that arise in the course of the ordinary activities of the entity include, for example,
cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash
 and cash equivalents, inventory, property, plant and equipment. Losses represent other items that meet the
definition of expenses and may, or may not, arise in the course of the ordinary activities of the entity. Losses
represent decreases in economic benefits and as such they are no different in nature from other expenses. Hence,
they are not regarded as a separate element in this Framework. [F 4.33 and F 4.34]
Recognition of the elements of financial statements
Recognition is the process of incorporating in the balance sheet or income statement an item that meets the
definition of an element and satisfies the following criteria for recognition: [F 4.37 and F 4.38]
It is probable that any future economic benefit associated with the item will flow to or from the entity; and

The item's cost or value can be measured with reliability.

Based on these general criteria:
An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the
entity and the asset has a cost or value that can be measured reliably. [F 4.44]

A liability is recognised in the balance sheet when it is probable that an outflow of resources embodying economic
benefits will result from the settlement of a present obligation and the amount at which the settlement will take
place can be measured reliably. [F 4.46]

Income is recognised in the income statement when an increase in future economic benefits related to an increase
in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that
recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities
(for example, the net increase in assets arising on a sale of goods or services or the decrease in liabilities arising
from the waiver of a debt payable). [F 4.47]

Expenses are recognised when a decrease in future economic benefits related to a decrease in an asset or an
increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses
occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the
accrual of employee entitlements or the depreciation of equipment). [F 4.49]
Measurement of the elements of financial statements
Measurement involves assigning monetary amounts at which the elements of the financial statements are to be
recognised and reported. [F 4.54]
The IFRS Framework acknowledges that a variety of measurement bases are used today to different degrees and in
varying combinations in financial statements, including: [F 4.55]
Historical cost

Current cost

Net realisable (settlement) value

Present value (discounted)

Historical cost is the measurement basis most commonly used today, but it is usually combined with other
measurement bases. [F. 4.56] The IFRS Framework does not include concepts or principles for selecting which
measurement basis should be used for particular elements of financial statements or in particular circumstances.
Individual standards and interpretations do provide this guidance, however.