Chapter One- Introduction to Published Accounts
1. Preparation of financial statements for companies
a. IAS 1 Presentation of Financial Statements states that a complete set of financial statements
comprises:
i. a statement of financial position
ii. either
1. a statement of profit or loss and other comprehensive income, or
2. a statement of profit or loss plus a statement showing other
comprehensive income
iii. a statement of changes in equity
iv. a statement of cash flows
v. accounting policies and explanatory notes.
b. IAS 1 (revised) does not require the above titles to be used by companies.
c. Exceptional items
i. Exceptional items is the name often given to material items of income and expense
of such size, nature or incidence that disclosure is necessary in order to explain the
performance of the entity.
ii. In some cases it may be more appropriate to show the item separately on the face
of the statement of profit or loss. Examples include:
1. write down of inventories to net realisable value (NRV), impairment of
property, plant and equipment ,restructuring costs, gains/losses on disposal
of non-current assets ,discontinued operations, litigation settlements,
reversals of provisions
d. consider the following items:
i. IAS 1 requires an asset or liability to be classified as current if:
1. it will be settled within 12 months of the reporting date, or
2. it is part of the entity's normal operating cycle
ii. Within the equity section of the statement of financial position, other components
of equity include:
1. revaluation surplus
2. share premium
3. investment reserve (see financial instruments, Chapter 10)
e. The recommended formats of Financial Statements are as follow:
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i. Statement of Financial Position or Balance Sheet
f.
Statement of Changes in Equity
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g. Statement of Financial Performance or Statement of Profit or Loss and Other
Comprehensive Income
i. Total comprehensive income is the realised profit or loss for the period, plus other
comprehensive income.
ii. Other comprehensive income (OCI) is income and expenses that are not recognised
in profit or loss (i.e. they are recorded in reserves rather than as an element of the
realised profit for the period). For the purposes of FR, other comprehensive income
includes any change in the revaluation of non-current assets (IAS 16, covered in
Chapter 2) and fair value through other comprehensive income financial assets (IFRS
9, covered in Chapter 10).
iii. The amendments to IAS 1 (revised) change how items of OCI are presented in the
financial statements – they do not change which items should be presented in OCI.
In principle, items of OCI must be classified as follows:
1. Items that might be reclassified (or recycled) to profit or loss in subsequent
accounting periods – Foreign exchange gains and losses arising on
translation of a foreign operation (IAS 21) (not on FR syllabus) – Effective
parts of cash flow hedging arrangements (IAS 39) (not on FR syllabus) –
Remeasurement of debt instruments designated to be classified as fair
value through OCI (IFRS 9, Chapter 10)
2. Items that will not be reclassified (or recycled) to profit or loss in
subsequent accounting periods – Changes in revaluation surplus (IAS 16,
Chapter 2 & IAS 38, Chapter 3) – Remeasurement of equity instruments
designated to be classified as fair value through OCI (IFRS 9, Chapter 10)
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2. Introduction to Published Accounts
a. Consider the following examples for preparing the relevant financial statements
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3. Not-for-profit and public sector entities
a. Profit-Oriented Organizations
i. To make profit and increase wealth, directors are responsible for shareholders and
external finance is available in form of loans and share capital
b. Not-for-profit and public sector entities
i. To achieve VFM, Managers are accountable to trustees/government/public, Finance
is limited to donations/government subsidies
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