Focus definition or best trends in IFRS reporting based on IAS 1

To demonstrate what companies could do to improve the readability of their financial report and make it easier for users to find the information they need, here are some thoughts for changing your financial report. In particular:

  • Information is organised to clearly tell the story of financial performance and make critical information more prominent and easier to find.
  • Additional information is included where it is important for an understanding of the performance of the company.

For example, include a summary of significant transactions and events as the first note to the financial statements even though this is not a required disclosure.

Accounting policies that are significant and specific to the entity are disclosed along with other relevant information, in the section ‘How did we arrive at these numbers?’ While other accounting policies are listed in note 25, this is for completeness purposes. Entities should consider their own individual circumstances and only include policies that are relevant to their financial statements.

The structure of financial reports should reflect the particular circumstances of the company and the likely priorities of its report readers. There is no ‘one size fits all’ approach and companies should engage with their investors to determine what would be most relevant to them. The structure used in this publication is not meant to be used as a template, but to provide you with possible ideas. It will not necessarily be suitable for all companies.

The start is traditional changing the main statements is a bridge too far:

Example Report Corp. (IAS 1.49, IAS 1.51(a))

Place, country

 

 

Annual financial report – 31 December 2021

 

Financial statements (IAS 1.49)

—— Consolidated statement of profit or loss

—— Consolidated statement of comprehensive income

—— Consolidated balance sheet

—— Consolidated statement of changes in equity

—— Consolidated statement of cash flows

Notes to the financial statements

 

Structure of the notes

Notes shall, as far as practicable, be presented in a systematic manner, keeping in mind the understandability and comparability of the financial statements. Each item in the balance sheet, statement of comprehensive income, statement of changes in equity and statement of cash flows shall be cross referenced to any related information in the notes. (IAS 1.113)

Examples of systematic ordering of notes include: (IAS 1.114)

  1. giving prominence to the areas of the entity’s activities that are most relevant to an understanding of the financial performance and financial position, e.g. by grouping together information about particular operating activities
  2. grouping together information about items that are measured similarly, for example assets measured at fair value, or
  3. following the order of the line items in the financial statements, by disclosing
    1. a statement of compliance with IFRS (see IAS 1.16)
    2. a summary of significant accounting policies applied (refer to IAS 1.117)
    3. supporting information for items presented in the balance sheet, statement of 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, and
    4. other disclosures, including:
      • contingent liabilities (see IAS 37) and unrecognised contractual commitments, and
      • non-financial disclosures (e.g. the entity’s financial risk management objectives and policies, see IFRS 7).

Traditionally, most financial reports have used the structure suggested in c) above.

However, financial report preparers increasingly consider annual reports to be an important tool in the communication with stakeholders and not just a mere compliance exercise. As a consequence, there is a growing interest in alternative formats of the financial statements.

This trend is supported by the IASB’s Disclosure Initiative. As part of this project, the IASB made amendments to IAS 1 that have provided preparers with more flexibility in presenting the information in their financial reports. (IAS 1.114)

This Example Report Corp. IFRS publication demonstrates one possible way of how financial reports could be improved if the existing information was presented in a more user-friendly order. To do so, information is presented about specific aspects of the entity’s financial position and performance together. For example, the entity’s exposure and management of financial risks is dealt with in notes 10 to 12, while information about the group structure and interests in other entities is presented in notes 13 to 16. Colour coding helps to find relevant information quickly.

In addition, the notes relating to individual line items in the financial statements disclose the relevant accounting policies as well as information about significant estimates or judgements.

Accounting policies that merely summarise mandatory requirements are disclosed at the end of the financial report, as they are not relevant for the majority of users. This structure makes the information in the financial report more accessible for users and provides a basis for considering the most useful structure for your entity’s report.

However, it is important to note that the structure used in this publication is not mandatory and is only one possible example of improved readability. In fact, experience has shown that there is not one structure that is suitable for all entities. Rather, the appropriate structure depends on the entity’s business and each entity should consider what would be most useful and relevant for their stakeholders based on their individual circumstances.

Materiality matters

When drafting the disclosures in the notes to the financial statements, also remember that too much immaterial information could obscure the information that is actually useful to readers.

Some of the disclosures in this publication would likely be immaterial if Example Report Corp. was a ‘real life’ company. The purpose of this publication is to provide a broad selection of illustrative disclosures which cover most common Focus definitionscenarios encountered in practice. The underlying story of the company only provides the framework for these disclosures and the amounts disclosed are not always realistic. Disclosures should not be included where they are not relevant or not material in specific circumstances. Further guidance on assessing materiality is provided in the non-mandatory IFRS Practice Statement 2 Making Materiality Judgements. (IAS 1.30A, IFRS PS2)

 

1. Example Report Corp.

 

Annual financial report – 31 December 2021

 
Contents of the notes to the financial statements

 

Page

1 What has changed in the current reporting period?

 

15

How did we arrive at these numbers?

 

2 Revenue from contracts with customers

3 Material profit or loss items

4 Other income and expense items

5 Income tax expense

6 Financial assets and financial liabilities

7 Nonfinancial assets and liabilities

8 Equity

9 Cash flow information

 

 

 

17

20

24

28

31

36

39

42

45

What are the risks included in these financial statements?

 

10 Critical estimates, judgements and errors

11 Financial risk management

12 Capital management

 

 

50

55

60

How is the Group/Company organised?

 

13 Segment information

14 Business combinations

15 Discontinued operations

16 Interests in other entities

 

 

65

70

74

78

What are the conditional items not yet recognised?

 

17 Contingent liabilities and contingent assets

18 Commitments

19 Events occurring after the reporting period

 

 

82

84

87

What are the details?

 

20 Related party transactions

21 Share-based payments

22 Earnings per share

23 Offsetting financial assets and financial liabilities

24 Assets pledged as security

25 Summary of significant accounting policies

26 Changes in accounting policies

 

 

91

95

99

103

106

110

125

 

 

Or with some additional explanations

2. Example Report Corp.

 

Annual financial report – 31 December 2021

 
Contents of the notes to the financial statements

 

Page

1 What has changed in the current reporting period?

A summary of important things management thinks are of interest to the reader of these financial statements to obtain an understanding of the reported data and comparatives.

 

15

How did we arrive at these numbers?

Disclosure of the most significant numbers and their accounting policies.

 

2 Revenue from contracts with customers

3 Material profit or loss items

4 Other income and expense items

5 Income tax expense

6 Financial assets and financial liabilities

7 Nonfinancial assets and liabilities

8 Equity

9 Cash flow information

 

 

 

17

20

24

28

31

36

39

42

45

What are the risks included in these financial statements?

What are the items that are by nature of more uncertainty or complexity and how does management address them?

 

10 Critical estimates, judgements and errors

11 Financial risk management

12 Capital management

 

 

 

50

55

60

How is the Group/Company organised?

How does management run the business and what are the changes to the business and relations with other entities.

 

13 Segment information

14 Business combinations

15 Discontinued operations

16 Interests in other entities

 

 

 

65

70

74

78

What are the conditional items not yet recognised?

What are items that are not yet accounted for in the financial position because they are conditional on the outcome of future events.

 

17 Contingent liabilities and contingent assets

18 Commitments

19 Events occurring after the reporting period

 

 

 

82

84

87

What are the details?

This is other relevant data that the reader of these financial statements might need to understand this financial reporting.

 

 

20 Related party transactions

21 Share-based payments

22 Earnings per share

23 Offsetting financial assets and financial liabilities

24 Assets pledged as security

25 Summary of significant accounting policies

26 Changes in accounting policies

 

91

95

99

103

106

110

125

 

Annualreporting provides financial reporting narratives using IFRS keywords and terminology for free to students and others interested in financial reporting. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.

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