IAS 1 Presentation of financial statements
Objective
IAS 1 Presentation of financial statements provides 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.
To achieve this objective, IAS 1 sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.
The illustration below shows an overview of the purpose, overall considerations, and components of financial statements.
Going concern
- When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern
- Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so
- When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, those uncertainties shall be disclosed
- When the financial statements are not prepared on a going concern basis, the fact shall be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern.
Comparative information
Unless permitted to do otherwise, information must be presented for the current and previous reporting period for all amounts reported in the financial statements. Comparative information shall be included for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements.
When the presentation or classification of items in the financial statements are amended, comparative amounts shall be reclassified unless impracticable to do so. When comparative amounts are reclassified, an entity shall disclose the nature, amount and reason for the reclassification.
When it is impracticable to reclassify comparative amounts, an entity shall disclose the reason for not reclassifying and the nature of adjustment that would have been made.
Example – Consolidated statement of Financial position
This is a generic example of the consolidated statement of financial position of a reporting company. As a result it shows almost all disclosure options possible not taking into account materiality or a real life company. So it needs tailoring to the actual events and transactions of a real life company.
The source for each disclosure requirement is given in the first column. The guidance refers to additional explanations following after the example consolidated statement of financial position.
Consolidated statement of financial position
Guidance – Consolidated statement of Financial position |
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Accounting standard for the statement of Financial position (balance sheet) 1. IAS 1 Presentation of Financial Statements refers to the balance sheet as ‘statement of financial position’. However, this title is not mandatory, the reporting entity may also elect to retain the well-known name of ‘balance sheet’. |
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Current/non-current distinction 2. An entity presents current and non-current assets and current and non-current liabilities as separate classifications in its balance sheet except where a presentation based on liquidity provides information that is reliable and is more relevant. Where that exception applies, all assets and liabilities are presented broadly in order of liquidity. |
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3. Whichever method of presentation is adopted, an entity shall disclose the amount expected to be recovered or settled after more than 12 months for each asset and liability line item that combines amounts expected to be recovered or settled: (a) no more than twelve months after the reporting period, and (b) more than 12 months after the reporting period. |
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4. Current assets include assets (such as inventories and trade receivables) that are sold, consumed or realised as part of the normal operating cycle even where they are not expected to be realised within 12 months after the reporting period. Some current liabilities, such as trade payables and some accruals for employee and other operating costs, are part of the working capital used in the entity’s normal operating cycle. Such operating items are classified as current liabilities even if they are due to be settled more than 12 months after the reporting period. |
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5. The operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in the form of cash or cash equivalents. Where the entity’s normal operating cycle is not clearly identifiable, its duration is assumed to be 12 months. |
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Three balance sheets required in certain circumstances 6. If an entity has applied an accounting policy retrospectively, restated items retrospectively or reclassified items in its financial statements that had a material effect on the information in the balance sheet at the beginning of the preceding period, it must provide a third balance sheet (statement of financial position) as at the beginning of the preceding comparative period. However, where the retrospective change in policy or the restatement has no effect on the preceding period’s opening balance sheet, we believe that it would be sufficient for the entity merely to disclose that fact. |
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7. Paragraph 54 of IAS 1 sets out the line items that are, as a minimum, required to be presented in the balance sheet. Additional line items, heading and subtotals should be added where they are relevant to an understanding of the entity’s financial position. For example, IAS 1 does not prescribe where employee benefit obligations should be presented in the balance sheet. The reporting entity has elected to present all employee benefit obligations together as separate current and non-current line items, as this provides more relevant information to users. |
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Separate line items for financial assets/liabilities and contract assets/liabilities 8. Paragraph 8 of IFRS 7 requires disclosure, either in the balance sheet or in the notes, of the carrying amounts of financial assets and liabilities by the following categories:
9. The reporting entity has chosen to disclose the financial assets by major category, but is providing some of the more detailed information in the notes. However, depending on the materiality of these items and the nature of the entity’s business, it may also be appropriate to choose different categories for the balance sheet and provide the above information in the notes. |
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IFRS15.105, BC320, BC321 |
10. Similarly, IFRS 15 Revenue from Contracts with Customers requires the presentation of any unconditional rights to consideration as a receivable separately from contract assets. The reporting entity has therefore presented its contract assets and contract liabilities as separate line items in the balance sheet. However, contract assets, contract liabilities and receivables do not have to be referred to as such and do not need to be presented separately in the balance sheet, as long as the entity provides sufficient information so users of financial statements can distinguish them from other items. |
Right-of-use assets and lease liabilities 13. Right-of-use assets (except those meeting the definition of investment property) and lease liabilities do not need to be presented as a separate line item in the balance sheet, as done by the reporting entity, as long as they are disclosed separately in the notes. Where right-of-use assets are presented within the same line item as the corresponding underlying assets would be presented if they were owned, the lessee must identify which line items in the balance sheet include those right-of-use assets. |
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12. Right-of-use assets that meet the definition of investment property must be presented in the balance sheet as investment property. |
Statement of Profit or Loss and Other Comprehensive Income
An entity presents all items of income and expense recognised in a period:
- in a single statement of profit or loss and other comprehensive income; or
- in two statements:
- a statement displaying components of profit or loss (separate statement of profit or loss) and
- a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income).
Profit or loss for the period
- All items of income and expense recognised in a period shall be included in profit or loss unless an IFRS requires otherwise
- An entity shall not present any items of income and expense as extraordinary items, either on the face of the statement of profit or loss or in the notes.
Information to be presented in the profit or loss section or the statement of profit or loss
- IAS 1.82 provides a list of items that must be presented in the profit or loss section or the statement of profit or loss
- IAS 1 provides examples of statement of profit or loss formats to be adopted by entities unless an alternative statement of profit or loss format is more relevant to users in understanding the entity’s financial performance.
Information to be presented in other comprehensive income section
- The other comprehensive income section presents line items for amounts of other comprehensive income in the period, classified by nature (including share of the other comprehensive income of associates and joint ventures accounted for using the equity method) and grouped into those that, in accordance with other IFRSs:
- Will not be reclassified subsequently to profit or loss; and
- Will be reclassified subsequently to profit or loss when specific conditions are met.
More details regarding the disclosures always need to be considered and tailored to the needs of users of general purpose financial statements and the significant financial events and transactions in the periods presented.
Example – Statement of profit or loss and other comprehensive income
This is a generic example of the consolidated statement of profit or loss and other comprehensive income of a reporting company. As a result it shows almost all disclosure options possible not taking into account materiality or a real life company. So it needs tailoring to the actual events and transactions of a real life company.
The source for each disclosure requirement is given in the first column. The guidance refers to additional explanations following after the example statement of profit or loss and other comprehensive income.
Statement of other comprehensive income
Guidance – Consolidated statement of profit or loss and statement of comprehensive income |
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Disclosure of specified separate line items in the financial statements 1. Consequential amendments made to IAS 1 Presentation of Financial Statements following the release of IFRS 9 Financial Instruments now require the separate presentation of the following line items in the statement of profit or loss:
* not illustrated, as not material or not applicable to the reporting entity. While the reporting entity recognises interest under the effective interest rate method, it does not consider this to be ‘revenue’ as the earning of interest is not part of the entity’s ordinary activities but rather an incidental benefit. |
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2. Depending on materiality, it may not always be necessary to present these items separately in the primary financial statements. However, items that are of a dissimilar nature or function can only be aggregated if they are immaterial. Further guidance on assessing materiality is provided in the non-mandatory IFRS Practice Statement 2 Making Materiality Judgements. |
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Finance income and finance cost 3. IAS 1 requires an entity to present finance costs on the face of the statement of profit or loss, but it does not require the separate presentation of finance income. The classification of finance income will depend on an entity’s accounting policy for such items. Refer to the commentary to note 5 for details. In the notes a breakdown of other income, other gains/losses and an analysis of expenses by nature may be disclosed, but it does not necessarily show all of the profit and loss amounts that must be disclosed under various accounting standards. Instead, individual profit and loss items may also be disclosed together with the relevant information to which they belong. For example, gains or losses related to various financial instruments held by the group are disclosed together with the balance sheet amounts. In general, this presentation is considered more useful for users of the financial statements for 2020 and ongoing. In addition, where material, entities must separately disclose any fee income arising from financial assets not at fair value through profit or loss and from trust and other fiduciary activities. |
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Additional line items 4. Additional line items, headings and subtotals shall be presented in the statement of comprehensive income and the statement of profit or loss (where applicable) where such presentation is relevant to an understanding of the entity’s financial performance. For example, a subtotal of gross profit (revenue from sales less cost of sales) could be included where expenses have been classified by function. |
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Framework 2.4, 2.12, 2.13 |
5. Having said that, additional sub-headings should be used with care. The Conceptual Framework for Financial Reporting states that to be useful, information must be relevant and faithfully represent what it purports to represent; that is, it must be complete, neutral and free from error. The apparent flexibility in IAS 1 can, therefore, only be used to enhance users’ understanding of the company’s financial performance. It cannot be used to detract from the amounts that must be disclosed under IFRS (statutory measures). |
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6. IAS 1 specifically provides that additional subtotals must:
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7. Earnings before interest and tax (EBIT) may be an appropriate sub-heading to show in the statement of profit or loss, as it usually distinguishes between the pre-tax profits arising from operating and from financing activities. In contrast, a subtotal for earnings before interest, tax, depreciation and amortisation (EBITDA) can only be included where the entity presents its expenses by nature and the subtotal does not detract from the GAAP numbers, either by implying that EBITDA is the ‘real’ profit or by overcrowding the statement of profit or loss so that the reader cannot determine easily the entity’s GAAP performance. |
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8. Where an entity presents its expenses by function, it will not be possible to show depreciation and amortisation as separate line items in arriving at operating profit, because depreciation and amortisation are types of expense, not functions of the business. In this case, EBITDA can only be disclosed by way of supplemental information in a box, in a footnote, in the notes or in the review of operations. |
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9. Where an entity discloses alternative performance measures, these should not be given greater prominence than the IFRS measure of performance. This might be achieved by including the alternative performance measure in the notes to the financial statements or as a footnote to the primary financial statement. Where an entity presents such a measure on the face of the primary statement, it should be clearly identified. Management should determine the overall adequacy of the disclosures and whether a specific presentation is misleading in the context of the financial statements as a whole. This judgement might be disclosed as a significant judgement in accordance with paragraph 122 of IAS 1. |
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10. Preparers of financial reports should also consider the view of their local regulator regarding the use of subtotals and disclosure of non-GAAP measures in the financial report where applicable. MD&A provides guidance on the use of non-GAAP measures in the management commentary. |
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IAS1.BC56 |
Operating profit 11. An entity may elect to include a subtotal for its results from operating activities. While this is permitted, care must be taken that the amount disclosed is representative of activities that would normally be considered to be ‘operating’. Items that are clearly of an operating nature, for example inventory write-downs, restructuring or relocation expenses, must not be excluded simply because they occur infrequently or are unusual in amount. Similarly, expenses cannot be excluded on the grounds that they do not involve cash flows (eg depreciation or amortisation). As a general rule, operating profit would be the subtotal after ‘other expenses’, i.e. excluding finance costs and the share of profits of equity-accounted investments. |
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Re-ordering of line items 12. Entities should re-order the line items and change the descriptions of those items where this is necessary to explain the elements of performance. However, entities are again governed by the overall requirement for a ‘fair presentation’ and should not make any changes unless there is a good reason to do so. For example, it will generally be acceptable to present finance cost as the last item before pre-tax profit, thereby separating financing activities from the activities that are being financed. |
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13. Another example is the share of profit of associates and joint ventures. Normally, this would be shown after finance cost. However, there may be circumstances where the line item showing the investor’s share of the results is included before finance cost. This could be appropriate where the associates and joint ventures are an integral vehicle through which the group conducts its operations and its strategy. In such cases, it may also be appropriate either to insert a subtotal ‘profit before finance costs’ or to include the share of profits from associates and joint ventures in arriving at operating profit (where disclosed). |
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14. However, the share of the profit or loss of associates and joint ventures accounted for using the equity method should not be included as part of the entity’s revenue. Combining the entity’s share of the associate’s revenue with its own revenue would be inconsistent with the balance sheet treatment where the entity’s investment is presented as a separate line item. This is different from the accounting for joint operations where the entity combines its share of the joint operation’s revenue with its own. Where a group conducts a significant proportion of its business through equity-accounted investments and wishes to highlight that fact to the reader of the statement of comprehensive income, it may choose to give additional financial information by way of a footnote and cross-reference to the notes. |
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Discontinued operations 15. Entities shall disclose a single amount in the statement of comprehensive income (or separate statement of profit or loss) comprising the total of
An analysis of this single amount is also required by paragraph 33 of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. This analysis may be presented in the notes or in the statement of comprehensive income (separate statement of profit or loss). In the case of the reporting company it is presented in note 15. If it is presented in the statement of profit or loss it must be presented in a section identified as relating to discontinued operations; that is, separately from continuing operations. The analysis is not required for disposal groups that are newly acquired subsidiaries that meet the criteria to be classified as held for sale on acquisition (refer to paragraph 11 of IFRS 5). |
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Earnings per share 16. While entities are permitted to disclose earnings per share based on alternative measures of earnings, these must be presented in the notes to the financial statements only (see note 22). |
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17. An entity that reports a discontinued operation must disclose the basic and diluted amounts per share for the discontinued operation either in the statement of comprehensive income or in the notes to the financial statements. the reporting company provides this information in note 22. |
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Components of other comprehensive income 18. Components of other comprehensive income (OCI) are items of income and expense (including reclassification adjustments, see #28 below) that are specifically required or permitted by other IFRS to be included in other comprehensive income and are not recognised in profit or loss. They include:
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19. Items of OCI must be classified by nature and grouped into those which may be reclassified and those that will not be reclassified to profit or loss. The share of OCI of equity accounted investments must be presented in total for the share of items that may be |
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20. The general view is that only items that are prohibited from being reclassified to profit or loss should be presented as items that will not be reclassified to profit or loss. For cash flow hedges, there is a possibility that some or all of the amounts might need to be reclassified to profit or loss. This could be the case, for example if there is a cumulative loss on the hedging instrument and the entity does not expect that all or a portion of the loss will be recovered. As a consequence, gains or losses recognised in relation to cash flow hedging instruments should be presented as items that ‘may be reclassified’ to profit or loss. |
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Summary 21. The requirements surrounding components of OCI can be summarised as follows:
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Discontinued operations 22. IFRS 5 is unclear as to whether entities need to separate out items of other comprehensive income between continuing and discontinued operations. In general, it would be consistent with the principles of IFRS 5 to do so, as it would provide a useful base for predicting the future results of the continuing operations. Note that entities must present separately any cumulative income or expense recognised in other comprehensive income that relates to a non-current asset or disposal group classified as held for sale. |
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Information to be presented either in the statement of comprehensive income or in the notes Material items of income and expense 23. Where items of income and expense are material, their nature and amount must be disclosed separately either in the statement of comprehensive income (statement of profit or loss) or in the notes. In the case of the reporting company these disclosures are made in note 4. |
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24. IAS 1 does not provide a specific name for the types of items that should be separately disclosed. Where an entity discloses a separate category of ‘significant’ or ‘unusual’ items either in its statement of comprehensive income or in the notes, the accounting policy note should include a definition of the chosen term. The presentation and definition of these items must be applied consistently from year to year. |
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25. Where an entity classifies its expenses by nature, it must take care to ensure that each class of expenses includes all items related to that class. Material restructuring cost may, for example, include redundancy payments (i.e. employee benefit cost), inventory write-downs (changes in inventory) and impairments in property, plant and equipment. It would not be acceptable to show restructuring costs as a separate line item in an analysis of expenses by nature where there is an overlap with other line items. |
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26. Entities that classify their expenses by function will have to include the material items within the function to which they relate. In this case, material items can be disclosed as footnote or in the notes to the financial statements. |
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Reclassification adjustments 27. An entity shall also disclose separately any reclassification adjustments relating to components of other comprehensive income either in the statement of comprehensive income or in the notes. the reporting company provides this information in note 9(c). |
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28. Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the current or previous periods. They arise, for example, on disposal of a foreign operation and when a hedged forecast transaction affects profit or loss. They do not arise on the disposal of property, plant and equipment measured at fair value under the revaluation model or on the settlement of defined benefit pension schemes. While these components are also recognised in OCI, they are not reclassified to profit or loss in subsequent periods. Reclassification adjustments also do not arise in relation to cash flow hedge accounting, where amounts are removed from the cash flow hedge reserve, or a separate component of equity, and are included directly in the initial cost or other carrying amount of an asset or liability. These amounts are directly transferred to assets or liabilities. |
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Dividends: statement of changes in equity or notes only 29. The amount of dividends recognised as distributions to owners during the period, and the related amount per share must be presented either in the statement of changes in equity or in the notes. In the case of the reporting company these disclosures are made in note 13(b). |
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Classification of expenses By nature or function 30. An analysis of expenses shall be presented using a classification based on either the nature of expenses or their function within the entity, whichever provides information that is reliable and more relevant. Entities are encouraged, but not required, to present the analysis of expenses in the statement of comprehensive income (or statement of profit or loss, where applicable). |
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31. The choice of classification between nature and function will depend on historical and industry factors and the nature of the entity. The entity should choose the classification that provides the most relevant and reliable information about its financial performance. |
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IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1
IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 |
32. Within a functional statement of comprehensive income (statement of profit or loss), costs directly associated with generating revenues should be included in cost of sales. Cost of sales should include direct material and labour costs but also indirect costs that can be directly attributed to generating revenue; for example, depreciation of assets used in the production. Impairment charges should be classified according to how the depreciation or amortisation of the particular asset is classified. Entities should not mix functional and natural classifications of expenses by excluding certain expenses such as inventory write-downs, employee termination benefits and impairment charges from the functional classifications to which they relate. An exception is impairment charges on financial and contract assets that must be presented separately as per IAS 1.82(ba) if they are material. |
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33. Entities classifying expenses by function shall disclose additional information about the nature of their expenses in the notes to the financial statements, see note 5(c). According to IAS 1 this includes disclosure of depreciation, amortisation and employee benefits expense. Other classes of expenses should also be disclosed where they are material, as this information assists users in predicting future cash flows. |
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34. A classification of expenses by nature on the face of the statement of profit or loss is provided in ‘Consolidated statement of profit or loss and other comprehensive income – single statement, showing expenses by nature‘ below. |
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Materiality 35. Regardless of whether expenses are classified by nature or by function, materiality applies to the classification of expenses. Each material class should be separately disclosed, and unclassified expenses (e.g. as ‘other expenses’) should be immaterial both individually and in aggregate. |
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36. The classification of expenses may vary with the type of expense. For example, where expenses are classified by nature, wages and salaries paid to employees involved in research and development (R&D) activities would be classified as employee benefits expense, while amounts paid to external organisations for R&D would be classified as external R&D expense. However, where expenses are classified by function, both the wages and salaries and external payments should be classified as R&D expense. |
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Offsetting 37. Assets and liabilities, and income and expenses, must not be offset unless required or permitted by an IFRS. Examples of income and expenses that are required or permitted to be offset are as follows:
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38. Income which falls under the scope of IFRS 15 Revenue from Contracts with Customers cannot be netted off against related expenses. However, this does not preclude an entity from presenting interest income followed by interest expense and a subtotal such as ‘net interest expense’ on the face of the statement of profit or loss as we have done in this publication. |
Statement of Changes in Equity
Information to be presented in the statement of changes in equity
- Total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests
- For each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8
- For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:
- profit or loss
- other comprehensive income
- transactions with owners in their capacity as 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.
Example – Statement of Changes in Equity
This is a generic example of the consolidated statement of changes in equity of a reporting company. As a result it shows almost all disclosure options possible not taking into account materiality or a real life company. So it needs tailoring to the actual events and transactions of a real life company.
The source for each disclosure requirement is given in the first column. The guidance refers to additional explanations following after the example statement of changes in equity.
Example – Statement of Changes in Equity
Guidance – Consolidated statement of changes in equity |
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IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 |
Accounting standard for the statement of changes in equity 1. The statement of changes in equity shall include:
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2. Components of equity include each class of contributed equity, the accumulated balance of each class of other comprehensive income and retained earnings. Individual reserves can be disclosed as a single column ‘other reserves’ if they are similar in nature and can be regarded as a component of equity. The reserves grouped together in the reporting company’s statement of changes in equity are all accounting reserves which have arisen as a result of specific requirements in the accounting standards. This distinguishes them from other reserves that are the result of discretionary transfers within equity, for example capital realisation reserves. Disclosing the individual reserves in the notes, rather than on the face of the statement of changes in equity, reduces clutter and makes the statement more readable. |
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3. The reconciliation of changes in each component of equity shall also show separately each item of comprehensive income. However, this information may be presented either in the notes or in the statement of changes in equity. the reporting company has elected to provide the detailed information in note 9(c) and (d). |
Statement of Cash Flows
IAS 7 Cash flow statements sets out requirements for the presentation of the cash flow statement and related disclosures.
Example – Statement of Cash Flows
This is a generic example of the consolidated statement of cash flows of a reporting company. As a result it shows almost all disclosure options possible not taking into account materiality or a real life company. So it needs tailoring to the actual events and transactions of a real life company.
The source for each disclosure requirement is given in the first column. The guidance refers to additional explanations following after the example statement of cash flows.
Example – Statement of Cash Flows
Guidance – Consolidated statement of Cash flows |
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Definition of cash and cash equivalents
Investments normally only qualify as cash equivalent if they have a short maturity of three months or less from the date of acquisition. Financial instruments can only be included if they are in substance cash equivalents, e.g. debt investments with fixed redemption dates that are acquired within three months of their maturity. |
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Reporting cash flows Expenditure on unrecognised assets to be classified as operating cash flows 2. Cash flows can only be classified as arising from investing activities if they result in the recognition of an asset in the balance sheet. Examples of expenditure that should be classified as operating cash flows on this basis are:
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Disclosing cash flows on a gross or net basis 3. Cash inflows and outflows must generally be reported gross unless they relate to:
Financial institutions may also report certain cash flows on a net basis. |
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Interest, dividends and taxes 4. IAS 7 does not specify how to classify cash flows from interest paid and interest and dividends received. the reporting company has chosen to present interest paid and interest received on financial assets held for cash management purposes as operating cash flows, but dividends and interest received on other financial assets as investing cash flows because they are returns on the group’s investments. Dividends paid are classified in this publication as financing cash flows, because they are a cost of obtaining financial resources. However, they could also be classified as operating cash flows, to assist users in determining the ability of an entity to pay dividends out of operating cash flows. |
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5. Cash flows arising from income taxes must be separately disclosed and are classified as operating cash flows unless they can be specifically identified with financing or investing activities. |
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Leases 6. Cash flows relating to leases must be presented as follows:
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Discontinued operations 7. Entities must disclose separately the net cash flows attributable to each of operating, investing and financing activities of discontinued operations. There are different ways of presenting this information, but the underlying principle is that the cash flow statement must give the cash flows for the total entity, including both continuing and discontinued operations. Entities might comply with the disclosure requirements in the following ways:
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Notes to the Financial Statements
The following should (at a minimum) be included in the notes to the financial statements:
- Information about the basis of preparation of the financial statements (e.g. going concern or in liquidation) and the specific accounting policies used
- Information required by International Financial Reporting Standards or that is relevant to understanding the statements that is not presented elsewhere in the financial report
- Significant accounting policies, including measurement bases and relevant policies to understanding the financial report
- The judgements, apart from those involving estimations, that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements
- Key assumptions concerning the future and other key sources of measurement uncertainty that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities in the next twelve months
- Information that enables users of its financial statements to evaluate the entity’s objectives, policies and processes for managing capital.
More details regarding the disclosures always need to be considered and tailored to the needs of users of general purpose financial statements and the significant financial events and transactions in the periods presented.
Example Notes to the Financial Statements
Example Notes to the Financial Statements
Guidance – Contents of the notes to the financial statements |
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Structure of the notes 1. 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. |
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IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 IAS 1 |
2. Examples of systematic ordering of notes include:
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3. Traditionally, most financial reports have used the structure suggested in para 2(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. |
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4. This trend is supported by the IASB’s Disclosure Initiative. As part of this project, the IASB made amendments to IAS 1 which have provided preparers with more flexibility in presenting the information in their financial reports.
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5. This reporting entity narrative 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 about specific aspects of the entity’s financial position and performance has been presented together. For example, the entity’s exposure and management of financial risks is dealt with in notes 11 to 13 while information about the group structure and interests in other entities is presented in notes 14 to 16. Color coding helps to find relevant information quickly. |
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6. 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. |
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7. 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, our 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. |
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Materiality matters 8. 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 narrative would likely be immaterial if the reporting company was a ‘real life’ company. The purpose of this narrative is to provide a broad selection of illustrative disclosures which cover most common scenarios 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. |
Consolidated statement of profit or loss and other comprehensive income – single statement, showing expenses by nature
This is an illustration of a classification of expense by nature on the face of the statement of profit or loss (other comprehensive income is not affected by such a classification). To make the alternative presentation more complete the statement of profit or loss and statements of other comprehensive income have been combined in one statement (as allowed by IAS 1.10A).
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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