IAS 1 Quick-start Presentation of Financial Statements

IAS 1 Quick-start Presentation of Financial Statements

Intro

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.

Compliance

Financial statements should include an explicit and unreserved statement of compliance with IFRS in the notes. However, this can only be the case if an entity complies with all requirements of all IFRS (IAS 1 16). IAS 1 Quick-start Presentation of Financial Statements

In practice, entities are often required by local law to comply with IFRS as adopted by local legislation. For example, in the European Union (EU) public entities are required to comply with IFRS ‘as adopted by the EU’. IAS 1 Quick-start Presentation of Financial Statements

IAS 1 takes into account a possibility that – ‘in the extremely rare circumstances’ – an entity will depart from a particular IFRS requirement. IAS 1 Quick-start Presentation of Financial Statements

This is possible if an entity believes that such a departure is necessary to avoid presenting information so misleading that it would conflict with the objective of general purpose financial reporting set in Chapter 1 of the Conceptual Framework.

Paragraphs IAS 1 20-22 set out disclosure requirements if this happens. Such a departure happens extremely rarely, if ever.

Alternatively, an entity may follow the IFRS requirement in question, but make a disclosure in the notes showing how would financial statements look like, if a departure was made (IAS 1 23).

Complete set

A complete set of financial statements comprises: IAS 1 Quick-start Presentation of Financial Statements

  • A statement of financial position
  • A statement of profit or loss and other comprehensive income
  • A statement of changes in equity
  • A statement of cash flows
  • Notes

Entities may use titles for the individual financial statements other than those used above. IAS 1 Quick-start Presentation of Financial Statements

Comparative information for the prior period is required for amounts shown in the financial statements and the notes.

Financial statements are generally prepared annually. If the end of the reporting period changes, and financial statements are presented for a period other than one year, additional disclosures are required.

A third statement of financial position is required when an accounting policy has been applied retrospectively or items in the financial statements have been restated or reclassified.

Materiality

IAS 1 defines what makes information material to the primary users of the financial statements. It also sets out the line items to be presented in each of the statements (with the exception of the statement of cash flows, for which IAS 7 sets out the requirements) and has guidance for when an entity presents additional line items or subtotals.

The IASB issued a Practice Statement in 2017 that provides guidance on making materiality judgements when preparing general purpose financial statements in accordance with IFRS Standards.

Statement of Financial Position

In the statement of financial position, assets and liabilities are required to be classified as current or non-current, unless presenting them in order of liquidity provides reliable and more relevant information. Assets and liabilities may not be offset unless offsetting is permitted or required by another IFRS Standard.

Statement of profit or loss and other comprehensive income

The statement of profit or loss and other comprehensive income includes all items of income and expense. It can be presented as either a single statement, with a sub-total for profit or loss, or as separate statements of profit or loss and other comprehensive income. Within the profit or loss section expenses are presented either by their nature (e.g. depreciation) or by function (e.g. cost of sales).

If they are presented by function, additional disclosures about their nature are required to be presented in the notes. Items can only be presented in other comprehensive income if permitted by an IFRS Standard, and are grouped based on whether or not they are potentially reclassifiable to profit or loss at a later date. Income and expenses may not be offset unless offsetting is permitted or required by another IFRS Standard. IAS 1 Quick-start Presentation of Financial Statements

There are special presentation requirements for discontinued activities and assets held for sale – see IFRS 5.

Statement of changes in equity

The statement of changes in equity is required to show the total comprehensive income for the period; the effects on each component of equity of retrospective application or retrospective restatement in accordance with IAS 8; and for each component of equity, a reconciliation between the opening and closing balances, disclosing each change separately.

Statement of cash flows

The statement of cash flows is not required by IAS 1, because it was introduced separate from the other main statements it is in a separate standard, IAS 7 Statement of Cash Flows.

Notes

The notes must include information about the accounting policies followed; the judgements 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; sources of estimation uncertainty; and management of capital and compliance with capital requirements. IAS 1 Quick-start Presentation of Financial Statements

Fundamental principles

IAS 1 also sets out the fundamental principles for the preparation of financial statements, including the going concern assumption, consistency in presentation and classification and the accrual basis of accounting. IAS 1 Quick-start Presentation of Financial Statements

Going concern

Going concern is one of the fundamental principles of reporting under IFRS (and other major GAAP). It means that the financial statements are prepared under the assumption that the entity will continue its operations in the foreseeable future (at least 12 months).

IAS 1 requires the management to assess whether an entity is a going concern, that is: whether the management does not intend to liquidate the entity or to cease trading, or have any realistic alternative but to do so. If there are any material uncertainties in this respect – those should be disclosed. IAS 1 Quick-start Presentation of Financial Statements

See IAS 1 25-26 for more details. IAS 1 Quick-start Presentation of Financial Statements

Consistency

In IFRS, consistency requires that a company’s financial statements follow the same accounting principles, methods, practices and procedures from one accounting period to the next.

This allows the readers of the financial statements to make meaningful comparisons between years. IAS 1 Quick-start Presentation of Financial Statements

Consistency does allow a company to make a change to a more preferred accounting method. However, the change and its effects must be clearly disclosed for the benefit of the readers of the financial statements. [IAS 1 45]

The Financial Accounting Standards Board refers to consistency as one of the characteristics or qualities that makes accounting information useful.

Example: IAS 1 Quick-start Presentation of Financial Statements

Let’s assume that a U.S. corporation uses the FIFO cost flow assumption for valuing its inventory and determining its cost of goods sold. Due to the increasing cost of its materials, it concludes that LIFO will better indicate the company’s true profit.

In the year of the change from FIFO to LIFO (and in years when comparisons are presented), the company must disclose the break in consistency.

Accrual 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]

With accrual accounting, income and expenses are allocated to the period they relate to, regardless of whether or not cash has actually changed hands. IAS 1 Quick-start Presentation of Financial Statements

An excellent example is a sale on credit. The sale is entered into the books when the invoice is generated rather than when the cash is collected. Likewise, an expense occurs when materials are ordered or when a workday has been logged in by an employee, not when the check is actually written.

Offsetting

As a rule, entities should not offset assets and liabilities or income and expenses unless required of permitted by a specific IFRS. IAS 1 32-35 gives examples of what can be offset and when offsetting is not allowed. See also a section on offsetting of financial instruments in IAS 32.

Current assets / Non-current assets

IAS 1 66 gives the criteria for classification of assets as current. If none of them is met, an asset is presented as non-current. So majority of decisions will be based on the 12-month period and on normal operating cycle. If an entity is able to identify its operating cycle, then all assets used within this cycle are current, even if this will last more than 12 months. IAS 1 Quick-start Presentation of Financial Statements

When single assets can be split into current/non-current portion, it must be done so in the statement of financial position. Typical examples are financial assets and liabilities which can be split into current and non-current portion based on the maturity of cash flows.

When a balance sheet line combines amounts to be recovered within/beyond 12 months (e.g. trade receivables/payables, inventories), an entity is required to separately disclose amounts expected to be recovered or settled within or beyond 12 months (IAS 1 61). This disclosure is thought to facilitate assessing liquidity and solvency of an entity.

New for 2019

No new requirements

Coming soon

The IASB has amended the definition of material. This amendment is effective for annual periods beginning on or after 1 January 2020, with earlier application permitted.

References to the Conceptual Framework have been amended to refer to the new Framework. The amendment is effective for annual periods beginning on or after 1 January 2020, with earlier application permitted. IAS 1 Quick-start Presentation of Financial Statements

IAS 1 is also being reviewed by the IASB as part of the Disclosure Initiative and Primary Financial Statement projects.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


IAS 1 Quick-start Presentation of Financial Statements IAS 1 Quick-start Presentation of Financial Statements IAS 1 Quick-start Presentation of Financial Statements

IAS 1 Quick-start Presentation of Financial Statements IAS 1 Quick-start Presentation of Financial Statements IAS 1 Quick-start Presentation of Financial Statements

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