Presentation of Financial Statements (IAS 1)
ACCO 20063 Conceptual Framework and Accounting Standards
Objectives


This standard prescribes the basis for
presentation of general-purpose financial
statements to ensure comparability both with
entity’s financial statements of previous
period and with the financial statements of
other entities.
It sets out overall requirements for the
presentation of financial statements,
guidelines for their structure and minimum
requirements for their content.
Scope

An entity shall apply IAS 1 in preparing and
presenting general purpose financial
statements in accordance with International
Financial Reporting Standards.
Financial statements
The
means
by
which
information
accumulated and processed in financial accounting
is communicated to the users, structured financial
representation of the financial position and financial
performance of an entity.
“General purpose” financial statements that
have been prepared for use by those who are not in
a position to require an entity to prepare reports
tailored to their particular needs.
3. Statement of changes in equity for the
period.
4. Statement of cash flows for the period.
5. Notes, comprising significant accounting
policies and other explanatory information.

6. Statement of financial position as at the
beginning of the preceding period when an
entity applies on accounting policy
retrospectively or make a retrospective
restatement of items in its financial
statements, or when it reclassifies items in its
financial statements.
7. An entity shall present with equal
prominence all of the financial statements.
(par. 11)
General features of
financial statements
1. Fair presentation and compliance with
IFRSs.

It requires the faithful representation of
the effects of transactions, other events
and conditions in accordance with the
definitions and recognition criteria for
assets, liabilities, income, and expenses.

An entity whose financial statements
comply with IFRSs shall make an explicit
and unreserved statement of such
compliance in the notes. (par. 16)

An entity shall not describe financial
statements as complying with IFRSs
unless they comply with all the
requirements of IFRSs.
Purpose

To provide information about the financial
position, financial performance, and cash
flows of an entity that is useful to a wide
range of users in making economic
decisions.
Complete set of financial statements
1. Statement of financial position at the end of
the period.
2. Statement of profit or loss and other
comprehensive income for the period.
comparative information in respect of the
preceding period.
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
It also requires entity:
- To select and apply accounting
policies, in a manner that provides
relevant, reliable, comparable, and
understandable.
- To provide additional disclosures
when compliance with the specific
requirements in IFRSs is insufficient.

An entity cannot rectify inappropriate
accounting policies either by disclosure
of the accounting policies or by notes o
by explanatory material.

When an entity departs from a
requirement of an IFRSs, it shall
disclose:
- The management has concluded that
the financial statements represent
fairly the entity’s financial positions,
financial performance, and cash
flows.
- It has complied with applicable
IFRSs, except that it has departed
from a particular requirement to
achieve fair presentation.
- The title of the IFRS from which the
entity has departed, the nature of the
departure, including the treatment
that the IFRSs would require.
- For each period presented, the
financial effect of the departure on
each item in the financial statement
that would have been reported in
complying with the requirement.
When an entity has a history of profitable
operations and ready access to financial
resources, the entity may reach a
conclusion that the going concern basis
of accounting is appropriate without
detailed analysis.
3. Accrual basis of accounting
 All financial statements shall be prepared
using the accrual basis of accounting
except for the statement of cash flows
which is prepared using cash basis.
4. Materiality and Aggregation
2. Going concern
 An entity shall prepare financial
statements on a going concern basis
either management intends to liquidate
or to cease trading or has no realistic
alternative but to do so.


When an entity does not prepare
financial statements on a going concern
basis, it shall disclose that fact, together
with the basis on which it prepared the
financial statement and the reason why
the entity is not regarded as a going
concern.

An entity shall present separately each
material class or similar items.

An entity shall present separately items
of dissimilar nature or function unless
they are immaterial.
5. Offsetting
 An entity shall not offset assets and
liabilities or income and expenses,
unless required or permitted by an IFRS.

Measuring
assets
net
valuation
allowances, for example, obsolescence
allowances on inventories and doubtful
debts allowances on receivables – is not
offsetting.

Example of offsetting:
- IAS 12: deferred tax assets and
deferred tax liabilities.
- An entity presents gains and losses
on the disposal of non-current assets,
including investments and operating
assets, by deducting an amount of
consideration on disposal the
carrying amount of the asset and
related selling expenses. (IFRS 5)
- An entity presents on a net basis
gains and losses arising from a group
of similar transaction, for example, for
exchange gains and losses or gains
and losses arising on financial
instruments held for trading.
6. Frequency of reporting
2


Financial statements are prepared at
least annually.
When an entity changes the end of its
reporting period and presents a financial
statement for a period longer or shorter
than a year, an entity shall disclose:
- The period covered by the financial
statements.
- The reason for using a longer or
shorter period.
- The fact that amounts presented in
the financial statements are not
entirely comparable.
-
Structure and content
Identification of the financial statements
7. Comparative information
 Except IFRSs permit
or require
otherwise, an entity shall present
comparative information in respect if the
preceding period for all amounts reported
in the current period’s financial
statements.

An entity shall present, as a minimum,
two statements of financial positions, two
statements of profit or loss and other
comprehensive income, two separate
statements of profit and loss (if
presented), two statement of cash flows
and two statement of changes in equity,
and related notes.

An entity shall present third statement of
financial position at the beginning of the
preceding period in addition to the
minimum comparative statements if:
- It applies an accounting policy
retrospectively.
- The retrospective application has a
material effect on the information in
the statement of financial position at
the beginning of the preceding
period.
8. Consistency of presentation
 An entity shall retain the presentation and
classification of items in the financial
statements form one period to the next
unless:
- It
is
apparent
that
another
presentation or classification would
be more appropriate having regard to
the criteria for the selection and
application of the accounting policies
in IAS 8 or:
An IFRS requires a change in
presentation.

An entity shall clearly identify the
financial statements and distinguish them
from other information in the same
published document.

An entity shall display the following
information prominently:
- The name of the reporting entity, or
other means of identification, and any
changes in that information from the
end of the preceding reporting period.
- Whether the financial statements are
of an individual entity or a group of
entities.
- The date of the end of the reporting
period or the period covered by the
set of financial statements or notes.
- The presentation currency, as
defined in IAS 21.
- The level of rounding used in
presenting amounts in the financial
statements.
Statement of financial
position

Financial statement showing the three
elements comprising the financial position
namely assets, liabilities, and equity.

An entity shall present the asset and
liabilities as current and non-current as
separate classification in its statement of
financial position,
When that exception applies, an entity shall
present all assets and liabilities in order of
liquidity.


Whichever method of presentation is
adopted, an entity shall disclose the amount
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expected to be recovered or settled after
more than twelve months for each asset and
liability line item that combine amount
expected to be recovered and settled.
-
Assets

An entity shall classify an asset as current
when:
- It expects to realize the asset, or intends
to sell or consume it, in its normal
operation cycle.
Operating cycle is the time between the
acquisition of assets for processing and
their realization and cash or cash
equivalents.
-
-
it holds the assets primarily for the
purpose of trading.
It expects to realize the asset within 12
months after the reporting period, or
The asset is cash or cash equivalents
(IAS 7) unless the asset is restricted from
being exchanged or used to settle a
liability for at least 12 months after the
reporting period.
Otherwise, the entity shall classify the
asset as non-current.
Liabilities

An entity shall classify a liability as current
when:
- It expects to settle the liability in its
normal operating cycle.
- It holds the liability primarily for the
purpose of trading.
The liability is due to be settled withing 12
months after the reporting period, or
It does not have an unconditional right to
defer settlement at the liability for at least
12 months after the reporting period.

An entity shall classify all other liabilities a
non-current.

If an entity expects, and has the discretion, to
refinance or roll over an obligation for at least
12 months after the reporting period under an
existing loan facility, it classifies the
obligation as non-current, even if it would
otherwise be due within a shorter period.

When refinancing or rolling over an
obligation, is not at the discretion of an entity,
for example, there is no rearrangement for
refinancing, the entity does not consider the
potential to refinance the obligation and
classifies the obligation as current.

When an entity breaches a provision of a
long-term loan arrangement on or before the
end of the reporting period with the effect that
the liability becomes payable on demand, it
classifies a s current, even if the lender
agreed, after the reporting period and before
the authorization of the financial statements
for issue, not to demand payment because of
the breach.

However, an entity classifies the liability as
non-current if the lender agreed by the end
of the reporting period to provide a period of
grace ending at least 12 months after the
reporting period, within which the entity can
rectify the breach and during which the
lender
cannot
demand
immediate
repayment.
The waiver of right to collect should happen on or
before the reporting period to classify the liability as
if there was no violation. Otherwise, it would be
considered as current.
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Statement of
comprehensive income

Equity



The residual interest in the assets of the
entity after deducting all the liabilities.
The account name in reporting the equity of
an entity depends on the form of the
business organization:
Shareholder’s equities include share capital,
share premium, treasury share, retained
earnings, and other comprehensive income
items.
A statement of financial position may be prepared
using of any of the following formats:
-
It is the overall income statement that
consolidates standard profit or loss
statement, which gives details about the
repetitive operations for the company, and
other comprehensive income.
Comprehensive income – the change of equity
during a period other than changes resulting from
transactions with owners in their capacity and such.
Comprehensive income includes profit or loss and
other comprehensive income.
Profit or loss – the total income less expenses
excluding the components of other comprehensive
income.
Other comprehensive income – comprise items of
income and expenses including reclassification
adjustments that are not included in Profit or Loss as
required by a standard or interpretation.

Account form, which look like a t-account,
where assets are listed on the left side
while the liabilities and equity are listed
on the right side.
An entity shall present the following items, in
addition to the profit or loss and other
comprehensive
income
sections,
as
allocation of profits or loss and other
comprehensive income for the period:
- Profit or loss and other comprehensive
income for the period attributable to:
a. Non-controlling interests
b. Owners of the parent
Profit or Loss
-
-
Report form presents assets, liabilities,
and equity in a continuous format.
Liabilities are presented after total assets
and equity accounts are listed after the
liability section.
Financial position form emphasizes
working capital of the firm. In this format,
net assets are equal to the equity.

Revenue, presenting separately interest
revenue calculated using the effective
interest method and insurance method.

Gains and losses arising from the
derecognition of financial assets measured
at amortized cost.

Insurance service expenses from contracts
issued within the scope of IFRS 17.

Income or expenses from reinsurance
contract.

Finance cost.
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




Impairment loss (including reversals of
impairment losses or impairment gains)
determined in accordance with section 5.5 of
IFRS 9.
Insurance finance income or expenses form
contracts held.
Share of profit or loss of associates and joint
ventures accounted for using the equity
method.
If a financial asset is reclassified out of the
amortized cost measurement category so
that it is measured at fair value through profit
or loss, any gain or loss arising from a
difference between the previous amortized
cost of the financial asset and its fair value at
the reclassification date. (as defined in IFRS
9)
If a financial asset is reclassified out of the
fair value through other comprehensive
income measurement category so that it is
measured at fair value profit or loss, any
cumulative gain or loss previously
recognized in other comprehensive income
that is reclassified to profit or loss.

Tax expense.

A single amount for the total of discontinued
operations.
-
-
Other gain or loss on equity investments
measured at fair value through other
comprehensive income.
Change in revaluation surplus.
Remeasurement gains and losses for
defined benefit plans.
Change in fair value arising from credit
risk for financial liabilities measured at
fair value through profit or loss.
An entity shall present an analysis of expenses
recognized in profit or loss using a classification
based on either their nature or their function within
the entity. Whichever provides the information that is
reliable and more relevant.
Nature of expense method - expenses are
aggregated in the income statement according to
their nature and are not reallocated among various
functions within the entity.
Function of expense or cost of sales method –
classifies expenses according to their function as
part of cost of sales or for example, the cost of
distribution or administrative activities.
Other Comprehensive Income


Includes the following components of OCI
that will be reclassified subsequently to profit,
or loss include the following:
- Unrealized gains or loss on debt
investments measured at fair value
through other comprehensive income.
- Unrealized gains or loss from derivative
contracts designated as cash flows
hedge.
- Translation gains and losses of foreign
operations.
Profit or loss
Components of OCI that will be reclassified
subsequently to retained earnings include
the following:
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-
Statement of Comprehensive Income

Total comprehensive income for the
period, showing separately the total
amounts attributable to the owners of
the parent and to non-controlling
interests.
- For each component of equity, the
effects of retrospective application or
retrospective restatement recognized in
accordance with PAS 8.
- For each component of equity, a
reconciliation between the carrying
amount at the beginning and the end of
the period, separately (as a minimum)
disclosing changes resulting from:
a. Profit or loss.
b. Other comprehensive income, and
c. Transactions with owners in their
capacity as owners, showing
separately contributions by and
distributions to owners and changes
in owner’s interest in subsidiaries
that do not result in a loss or control.
An entity shall present, either in the
statement of changes in equity or in the
notes, the amount of dividends recognized
as distributions of owners during the period,
and the related amount of dividends per
share.
Statement of cash flows
Statement of changes in
equity


Shows the movement in the elements or
components of the shareholder’s equity.
An equity shall present a statement of
changes in equity showing in the statement:


Cash flow information provides users of
financial statements with a basis to assess
the ability of the entity to generate cash and
cash equivalents and the needs of the entity
to utilize those cash flows.
IAS 7 sets out requirements for the
presentation and disclosure of cash flow
information.
7
-
Notes to the financial
statements

The notes shall:
- Present the information about the basis
of preparation of the financial statements
and the specific accounting policies
used.
- Disclose the information required by
IFRSs that is not presented elsewhere in
the financial statements.
- Provide information that is not presented
elsewhere in the financial statements but
is relevant to an understanding of any of
them.

An entity shall, as far as practicable, present
notes in a systematic manner.

An entity shall cross reference each item in
the statements of financial position and in the
statement of profit or loss and other
comprehensive income, and in the statement
of changes in equity and of cash flows to any
related information in the notes.

The entity shall disclose its significant
accounting policies comprising:
- The measurement basis (or bases) used
in preparing the financial statements.
- The other accounting policies used that
are relevant to an understanding of the
financial statements.

An entity shall disclose information about the
assumption it makes about the future, and
other major sources of estimation uncertainty
at the end of the reporting period that have a
significant risk if resulting in a material
adjustment to the carrying amounts of asset
and liabilities within the next financial year.
In respect of those assets and liabilities, the
notes shall include details of:
- Their nature
- Their carrying amount at then end of the
reporting period.
Examples of the types of disclosure an entity
makes are:
- The nature of the assumption or other
estimation uncertainty.


-
-

The sensitivity of carrying amounts to the
methods, assumptions, and estimates
underlying their calculations, including
the reasons for the sensitivity.
The expected resolution of an uncertainty
and the range of reasonably possible
outcomes within the next financial year in
respect of the carrying amounts of the
assets and liabilities affected.
An explanation of changes made to past
assumptions concerning those assets
and liabilities if the uncertainty remains
unresolved.
The standard does not require an entity to
disclose budget information or forecasts in
making the disclosure.
8