The Main Statements of Financial Statements

The Main Statements of Financial Statements – This is some explanation of the basic presentation of Financial Statements into a categorised format that is useful for the most of the users for Financial Statements.

There are four main financial statements:

• Statement of Financial Position,
• Statement of Profit or Loss and Other Comprehensive Income,
• Statement of Cash Flows,
• Statement of changes in Shareholders’ Equity.

The Statement of Financial Position (blast from the past, also previously known as the Balance sheet) shows what a company owns and what it owes at a fixed point in time.

The Statement of Profit or Loss and Other Comprehensive Income (or the older name Income statement) shows how much money a company made and spent over a period of time (but not on a cash basis, no it is on a accrual basis). The Main Statements of Financial Statements

The Statement of Cash Flow shows the exchange of money between a company and the outside world also over a period of time (and yes you guessed it right, this is on a cash basis, directly from the movements in cash or indirectly calculated from the movements in the Financial Position and Profit or Loss and Other Comprehensive Income).

The Statement of changes in Shareholders’ Equity only shows changes in the interests of the company’s shareholders over time.

Then to complete the contents of Financial Statements there are the ‘Notes to the Financial Statements‘. The Main Statements of Financial Statements

A common sense rule in IFRS is that disclosures in the Financial Statements need to be either in one of the four main statements or in the notes. For example, if an entity classifies Property, Plant and Equipment (PP&E) into:

1. Land, The Main Statements of Financial Statements
2. Factories, The Main Statements of Financial Statements
3. Offices, The Main Statements of Financial Statements
4. Right-to-use assets, and The Main Statements of Financial Statements
5. Other, The Main Statements of Financial Statements

the entity can include these classes of PP&E directly on the face of the Statement of Financial Position or in the Notes to the Financial Statements to provide useful information. To keep things tidy it is that common sense that tells you to not put every detail in the four main statements. The Main Statements of Financial Statements

It’s so important to read the Notes to the Financial Statements. The Notes to the Financial Statements are packed with information and are an attempt of IFRS to provide useful information. Here are some of the highlights:

• Significant accounting policies and practices – Entities are required to disclose the accounting policies that are most important to the portrayal of the entity’s financial condition and results. These often require management’s most difficult, subjective or complex judgments. The Main Statements of Financial Statements
• Income taxes – The notes provide detailed information about the company’s current and deferred income taxes. One of the hottest disclosures for the coming years (2019 and forward) is disclosed (US) (or will be disclosed (continental Europe) here, it is the description and tabulation of the main items that affect the entity’s effective tax rate.
• Pension plans and other retirement programs – The notes discuss the entity’s pension plans and other retirement or post-employment benefit programs. The notes contain specific information about the assets and costs of these programs, and indicate whether and by how much the plans are over- or under-funded.
• Stock options – The notes also contain information about stock options granted to officers and employees, including the method of accounting for stock-based compensation and the effect of the method on reported results.

The Main Statements of Financial Statements