Presentation and disclosure have received a prominent combined place in the Conceptual Framework for Financial Reporting 2018. After Recognition and Derecognition and Measurement it provides the end process of accounting for financial events and transactions in Financial Statements of a Reporting Entity and the elements of Financial Statements.
Presentation and disclosure as communication tools.
This chapter states that presentation and disclosure are communication tools. Effective communication of information in financial statements requires:
- Focusing on presentation and disclosure objectives and principles rather than focusing on rules;
- Classifying information in a manner that groups similar items and separates dissimilar items; and
- Aggregating information in such a way that it is not obscured either by unnecessary detail or by excessive aggregation.
Presentation and disclosure objectives and principles
A balance is needed between:
- Giving entities the flexibility to provide relevant information that faithfully represents the entity’s assets, liabilities, equity, income and expenses; and
- Requiring information that is comparable, both from period to period and across entities.
Effective communication in financial statements is also supported by considering the following two principles:
- Entity-specific information is more useful than standardized descriptions; For example, it is of no value to say that revenue in accordance with IFRS 15 is recognized when control is transferred. However, providing the time of this transfer in light of the activity and habitual contractual arrangements of the entity would be more useful.
- Duplication of information in different parts of the financial statements is usually unnecessary and can make financial statements less understandable.
However, in exceptional circumstances the IASB may decide that items arising from a change in the current value of an asset or liability are to be included in other comprehensive income, if excluding them from the statement of profit or loss enhances relevance and provides a more faithful representation.
However, items measured on a historical cost basis may not be recorded in other comprehensive income.
This applies to financial instruments that are held to collect and sell under IFRS 9, where the part corresponding to interest income is included in the statement of profit or loss.
However an exemption may be provided from this principle if, for example, there is no clear basis for identifying the period in which recycling to profit or loss would enhance the relevance and faithful representation of the information in that statement.
Note that currently, the elements of OCI that cannot be recycled in P&L are: remeasurement adjustments on fixed assets, remeasurements or actuarial gains and losses on defined benefit plans and fair value changes to the own credit risk for liabilities recognized at fair value in profit or loss.
See also: The Conceptual Framework 2018
Presentation and disclosure
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