3.3 Financial
Statements and Their
Interrelationships
The core financial statements connect to complete an overall picture
of the company’s operations and its current financial state. It is
important to understand how these reports connect; therefore, a
review of some simplified financial statements for Wellbourn
Services Ltd., a large, privately-held company is presented below
(assume Wellbourn applies IFRS; for simplicity, comparative year data
and reporting disclosures are not shown).
As can be seen from the flow of the numbers above, the net income from the
statement of income becomes the opening amount for the statement of
comprehensive income (a statement required for all IFRS reporting
companies).
Comprehensive income starts with net income/loss and includes certain
gains or losses called other comprehensive income (OCI) that are not already
reported in net income. The most notable examples for purposes of this
course are:
● unrealized gains or losses for investments classified as fair value
through OCI (FVOCI), resulting from changes in their fair value while the
investment is being held (Chapter 8)
● gains/losses resulting from the application of the revaluation method
for property, plant and equipment, and intangibles (Chapter 9)
In the next intermediate accounting course, another OCI item is the
remeasurement gains and losses regarding defined benefit pension plans.
To summarize, IFRS companies must report:
● Other comprehensive income (OCI) = certain gains or losses not already
included in net income, net of tax, with tax amount disclosed
● Total comprehensive income = net income/loss +/- other
comprehensive income (OCI)
Returning to the Wellbourn financial statements, looking at the statement of
comprehensive income, net income closes to retained earnings, while any
other comprehensive income (OCI) gain or loss closes to accumulated other
comprehensive income (AOCI) in the statement of changes in equity. The
AOCI account is similar to a retained earnings account, except that AOCI only
accumulates items from OCI.
To summarize:
● Retained earnings accumulate net income/loss over time. (ASPE and
IFRS)
● AOCI accumulates other comprehensive income (OCI)/losses over time.
(IFRS only)
It should also be noted that IFRS companies can choose to keep the
statement of income separate from the statement of comprehensive income,
or they can combine the two statements into one report called the statement
of income and comprehensive income, which will be discussed in more detail
in the next section.
Looking at the Wellbourn statement of changes in equity, note that the total
column balances to the equity section of the statement of financial
position/balance sheet (SFP/BS). The final link between all the financial
statements is regarding the statement of cash flows (SCF), where the ending
cash balance must be equal to the cash balance reported in the SFP/BS. This
completes the loop of interconnecting accounts and amounts.
3.3.1. Financial Statement
Differences Between IFRS and
ASPE
The core financial statements shown above illustrate the types of statements
required for IFRS companies. They are the following:
● a statement of income
● a statement of comprehensive income
● a worksheet-style statement of changes in equity with all the
● equity accounts included
● a statement of financial position
● a statement of cash flows
● notes to the financial statements
IFRS requires the comparative previous year amounts be reported as well as
disclosure of the earnings per share. ASPE does not require these disclosures.
IFRS requires the statement of comprehensive income (or a combined
statement of income and comprehensive income), whereas ASPE only
requires a statement of income because comprehensive income does not
exist. The statement of changes in equity required by IFRS shown in the
Wellbourn example above now becomes a more simplified statement of
retained earnings for ASPE, where only the details for retained earnings are
reported (though any changes in shareholder equity accounts must be
disclosed in the notes to the financial statements). The remaining equity
accounts such as common shares and contributed surplus are reported as
ending balances directly in the balance sheet for ASPE (called the statement
of financial position for IFRS companies).