The elements of financial statements

The elements of financial statements are the classes of items contained in the 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.International Financial Reporting Standards

There are two main groups of elements:

  • The first is associated with the measurement of an entity’s financial position: assets, liabilities and equity.
  • The second is related to the measurement of performance: income and expenses.

Within these main categories there are sub-classifications. For example, assets and liabilities may be classified by their nature or function in the business of the entity in order to display information in the manner most useful to … Read more

Consolidated or unconsolidated financial statements

Consolidated financial statements provide information about the assets, liabilities, equity, income and expenses of both the parent and its subsidiaries as a single reporting entity.

That information is useful for existing and potential investors, lenders and other creditors of the parent in their assessment of the prospects for future net cash inflows to the parent. This is because net cash inflows to the parent include distributions to the parent from its subsidiaries, and those distributions depend on net cash inflows to the subsidiaries.

Consolidated financial statements are not designed to provide separate information about the assets, liabilities, equity, income and expenses of any particular subsidiary. A subsidiary’s own financial statements are designed to provide that information.

Obviously this does not … Read more

The Reporting Entity

The two most common reporting entities are a single legal entity preparing unconsolidated or company accounts or a group of legal entities preparing consolidated financial statements. Consolidation can be done at different levels, the most common being at the ultimate parent legal company level (the highest legal entity that controls any number of other legal entities) or at a sub-holding level by a reporting entity obliged to consolidate all legal entities it controls at this level.

If a reporting entity comprises two or more entities that are not all linked by a parent-subsidiary relationship, the reporting entity’s financial statements are referred to as ‘combined financial statements’.

Boundaries of other reporting entitiesThe Reporting Entity

Determining the appropriate boundary of a reporting entity can … Read more

Reporting period

A reporting period is the span of time covered by a set of financial statements, normally a year from 1 January Year to 31 December Year. The reporting period also called accounting period can also be for a interim period either for a month or quarter. Reporting entities consistently use the same reporting periods from year to year, so that their financial statements can be compared to the ones produced for prior years.

The reporting period is stated in the header of a financial report. For example, the income statement header might read, “for the year ended 31 December Year.” while the balance sheet header might read “as of 31 December Year.”

Some reporting entities use a reporting period other … Read more

What are IFRS Financial Statements?

The objective of financial statements is to provide financial information about the reporting entity’s assets, liabilities, equity, income and expenses that is useful to users of financial statements in assessing the prospects for future net cash inflows to the reporting entity and in assessing management’s stewardship of the entity’s economic resources.

A content page of IFRS Financial Statement may look similar to the following content listing: What are IFRS Financial Statements?

  • Statement of Financial Position: This is also known as the balance sheet. IFRS prescribes the ways in which the components of a balance sheet are reported. This statement recognises assets, liabilities and equity. This comprises information about a reporting entity’s economic resources, claims against the entity and changes

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More details to present Useful Financial Information

What are more qualitative characteristics that enhance the usefulness of information that already qualifies as relevant and providing a faithful representation?

The enhancing qualitative characteristics may also help determine which of two ways should be used to depict a phenomenon if both are considered to provide equally relevant information and an equally faithful representation of the substance of the financial outcome of transactions in a business model.

The enhanced qualitative characteristics are:

  1. Comparability,
  2. Verifiability,
  3. Timeliness, and
  4. Understandability.

Comparability More details to present Useful Financial Information

From Merriam-Webster: A definition of Comparability is the quality or state of being comparable. An example in a sentence explains it all:

 “there’s little comparability between the two vehicles: one’s basic transportation and the … Read more