International Accounting

Standards

IAS 1 Presentation of
Financial Statements
1

Objective

To explain the bases for the

presentation of general purpose
financial statements

Scope
IAS 1 sets out
the overall considerations for the presentation of financial statements,
guidelines for their structure,
and the minimum content requirements

It also requires financial statements to:

present fairly the financial position, performance and cash flow
and to be prepared on an accrual and going concern basis

It must be applied for all financial statements prepared

in accordance with IAS.
It is applicable for all types of enterprises, including
bank and insurance companies.

Components and Structure of

Financial Statements
A complete set of financial statements must include
the following components:
a balance sheet;
an income statement;
a statement of changes in equity;
a cash flow statement; and
accounting policies and explanatory notes.

The entitys management/directors is responsible for

preparing and presenting the financial statements.
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Continued-Components
IAS 1 encourages entities to present
a financial review or comment on their financial
performance, financial position and the uncertainties
faced.
additional statements such as environmental reports.
Financial statements and each component of the financial
statements must be clearly identified and distinguished
from other information in the annual report.
IASs apply only to the financial statements and not to
other information presented in the annual report.
Financial statements must be presented at least annually.5

Continued-Components
IAS 1 states that an entity should be in a position to issue
financial statements within 6 months from the balance
sheet date.
The following information must also be clear:
the name of the reporting entity
whether the financial statements cover individual financial
statements or consolidated financial statements,
the balance sheet date, or period of reporting,
reporting currency, and
level of precision of financial statement figures (e.g., millions).

Overall Considerations
The overall factors included in IAS 1 are:

Going concern
Accrual basis of accounting
Materiality and aggregation
Offsetting
Accounting policies
Consistency of presentation
Comparative information
Compliance with IASs
Fair presentation and compliance with International
Accounting Standards
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Going Concern
Going Concern an assessment of the enterprises
ability to continue as a going concern must be
made at each reporting date.
FS should be prepared on a going concern basis
unless the business will cease or there is no
realistic alternative but to liquidate.
Disclosure requirements if:
there are uncertainties regarding the ability to continue as
a going concern
FS not prepared on a going concern basis.
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Accrual Basis of Accounting, Materiality &

Aggregation

Accrual Basis of Accounting should be applied

in the preparation of financial statements, except
for the cash flow statement.

Materiality and Aggregation

Each material item should be presented separately in the
financial statements.
Immaterial items should be aggregated with amounts of a
similar nature and function and need not be presented
separately.

Continued Accrual Basis

Materiality
Information is material if its non-disclosure could
influence the economic decision of users.
Materiality depends on the size and nature of the item.
IASs are not intended to apply to immaterial items.

Examples
Individual related party transactions might be disclosed
even though the amounts involved are immaterial.
Information about a new segment might be relevant,
irrespective of size, since it may affect the assessment of
risks and opportunities facing the entity.
10

Offsetting
Offsetting Assets and liabilities should not be
offset unless offsetting is specifically required or
permitted by another IAS.

Income and expense items are to be offset

only when:
an IAS requires or permits offsetting: or
gains, losses and related expenses arising from similar
transactions are not material in which case these amounts
should be aggregated.
11

Accounting Policies
Accounting policies must ensure that the financial
statements comply with all applicable IAS and
SIC Interpretations.
Where there is no IAS, the accounting policies
selected must be such that the information
included in the financial statements is:
relevant to users decision making needs; and
reliable, they are neutral and reflect the economic
substance of transactions

12

Continued Accounting Policies

Where there is no IAS, select policies with regard to:
IASs dealing with similar issues
IASC Framework
Industry practice and pronouncement of other standard
setters
But no requirement to refer to IAS Exposure Drafts

Accounting policies should describe:

The measurement basis (bases) used in preparing the
financial statements (historical cost, current cost,
realizable value, fair value, or present value),
Any specific accounting policy that is necessary for a
proper understanding of the financial statements.
13

Continued Accounting Policies

An entity may consider presenting the following
accounting policies:

Revenue recognition
Consolidation principles, incl. Subsidiaries and associates
Business combinations
Joint ventures
Recognition and depreciation/amortization of tangibles
and intangibles
Capitalization of borrowing costs and other expenditures
Construction contracts
Investment properties
14

Continued Accounting Policies

Financial instruments and investments

Leases
Research and development costs
Inventories
Taxes
Provisions
Employee benefit costs
Foreign currency translation and hedging
Basis of segment reporting
Definition of cash and cash equivalent
Inflation accounting
Government grants

15

Consistency of Presentation
The presentation and classification of items in the
financial statements should be retained from one
period to the next unless:
the enterprise significantly changes the nature of its
operation; or
a change is required by an IAS or SIC Interpretation.

When a change in presentation is made,

comparative information must be reclassified.

16

Continued Consistency
If more than one accounting policy is available
under an IAS or Interpretation, one of these must
be chosen and applied consistently unless the
IAS or Interpretation specifically requires or
permits categorization of items.
If a Standard requires or permits categorization of
items, the most appropriate accounting policy
should be selected and applied consistently to
each category.
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Comparative Information
Comparative numerical information for the
previous period is required to be disclosed unless
such disclosures is exempted by another IAS.
Reclassify comparative amounts if the presentation
or classification of items in the financial
statements is amended.
The nature, amount of and reason for any
reclassification should be disclosed.
18

Compliance with IASs

An enterprise whose FS comply with IAS
must disclose that fact.
All standards and interpretations must be
complied with. No longer:
comply with IASs in all material respects
comply with the significant requirements of

IASs
are based on IASs

19

Fair Presentation
A fair presentation of FS is, in virtually all
cases, achieved by an appropriate
application of IASs.
Fair presentation Override
If compliance with an IAS would be misleading,
departure from that standard is required only in
extremely rare circumstances.
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Continued Fair Presentation

Comprehensive
include:

disclosures

requirements

a.) that management has concluded that the

financial statements fairly present the enterprises
financial position, financial performance and
cash flow,
b.) that it has complied in all material respects with
applicable IAS except that it has departed from a
Standard in order to achieve a fair presentation,
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Continued Fair Presentation

c.) the Standard from which the enterprise has
departed, the nature of the departure, including
the treatment that the Standard would require, the
reason why that treatment would be misleading in
the circumstances and the treatment adopted and
d.) the financial impact of the departure on the
enterprises net profit or loss, assets, liabilities,
equity and cash flows for each period presented.

22

Early Application of International

Accounting Standards

When an enterprise applies an IAS before its

effective date, that fact must be disclosed
in the FS.

23

SIC-8 First-Time Application of IASs

Prepare as if the FS had always been prepared
with IASs and SICs effective for the period of
first-time application.
Apply IASs and SICs retrospectively, unless:
Different treatment permitted/required in individual

IASs/SICs or
Adjustment cannot be reasonably determined.

Restate
comparative
information
unless
impracticable.
Adjust opening retained earnings of earliest
period presented.

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SIC-8 First-Time Application of IASs

Disclosure requirements:
the fact that the amount of the the adjustment

to the opening balance of retained earnings

cannot be reasonably determined;
the fact that it is impracticable to provide
comparative information, and
the policy selected for each IAS that permits a
choice of transitional accounting policies.

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Balance Sheet: Current/Non-current

Distinction
Present assets and liabilities on the face of the
BS as:
using a current/non-current classification; or
broadly in order of their liquidity.

Whichever method is chosen:

Disclose amounts due for recovery or settlement

after more than 12 months for each asset and

liability item.
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Current Assets
Current assets are:
assets expected to be realized, consumed or disposed of
in the normal course of the enterprises operating cycle;
or
Assets held primarily for trading purposes or the shortterm and expected to be realized within 12 months of
balance sheet date; or
Cash or cash equivalent assets not restricted in use.

Current assets include cash and cash equivalents

that are not restricted in their use.
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Current Liabilities
Short-term debt should be classified as noncurrent if
the original term was over 12 months,
there is an intention to re-finance, and
a refinancing agreement is completed before

authorization of the financial statements.

28

Current Liabilities
Current liabilities are liabilities:
expected to be settled in the normal course of

the enterprises operating cycle; or

due to be settled within 12 months of the
balance sheet date.

29

Long-term Interest Bearing Liabilities

Long-term interest bearing liabilities should

continue to be classified as non-current, even if
they are due for settlement within 12 months
from the balance sheet date, provided that the
original term was more than 12 months and the
enterprise has the intention and ability to roll
over the obligation.

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Balance Sheet: Minimum Information

Item that must, at a minimum, be presented on
the face of the balance sheet:
Property, plant and equipment
Intangible assets
Financial assets
Equity investment
Inventories
Trade and other receivable
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Continued Balance Sheet

Cash and cash equivalents
Issued capital and reserves
Minority interest
Non-current interest bearing liabilities
Provisions
Tax liabilities and assets
Trade and other payables
32

Additional Information Disclosed on the

Face of the Balance Sheet or in the Notes
Further sub-classifications of the line items can be
disclosed either
on the face of the balance sheet or
in the notes to the balance sheet.
Separately present amounts payable to and
receivable from parent, subsidiaries, associates
and other related parties.
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Detailed Disclosures
Detailed disclosures relating to equity line items are
also required. They can be made either on the
face of the balance sheet or in the notes to the
balance sheet.
Comprehensive disclosure regarding equity items:
For each class of share capital (face or notes):

o Number of shares authorized

o Number of shares issued and fully paid
o Number of shares issued and not fully paid
34

Continued Detailed Disclosures

o Par value or no-par value
o A reconciliation of movements in number of

shares
o Rights, preferences and restrictions
o Treasury shares
o Shares held for options and sale contracts
- Nature and purpose of each equity reserve
- Proposed dividends
- Cumulative preference dividends not recognized.
35

Income Statement: Minimum

Information
Items that must, as a minimum, be presented on
the face of the income statements:
Revenue
Results from operating activities
Finance costs
Share of profits and losses of associates and joint

ventures accounted for using the equity method

36

Continued Income
Tax expense
Profit or loss from ordinary activities
Extraordinary items
Minority interest
Net profit and loss for the period

37

Additional Information Disclosed on the Face of

the Income Statement or in the Notes
Additional Information Disclosed on the Face of the
Income Statement or in the Notes
an analysis of expanses using a classification based on

either the nature of expenses or their function.

When the nature of expense method is used,

expenses are aggregated in the income statement
according to their nature (e.g., depreciation,
transportation, salaries and wages, advertising
expense).
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Continued Additional Info

Example: Income statement: Nature of expenses method
Revenue

Other operating income

Changes in inventories of finished goods & work in process

Raw materials and consumables used

Staff costs

Depreciation and amortization

Other operating expenses

Total operating expenses

Profit from operating activities

(x)
x

39

Continued Additional Info

When the cost of sales method or function of
expenses method is used, expenses are classified
according to their functions as part of cost of
sales, distribution or administrative activities.
Additional disclosure required about the nature
of
expenses,
including
depreciation,
amortization and staff costs.

40

Income statement: Function of

expenses
Example: Income statement: Function of expenses
Revenue
Costs of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Other operating expenses
Profit from operating activities

X
(x)
X
X
(x)
(x)
(x)
X
41

Continued Income statement

The enterprise must also disclose the amount of
dividends per share (declared or proposed) for
the period.
The earnings per share should also be shown on the
face of the income statement. This only applies to
enterprises whose ordinary shares are publicly
traded.
42

Changes in Equity
IAS 1 requires the presentation of a
statement (or as a separate component of
the financial statements) showing either:
All changes in equity, or
Changes other than those arising from capital

transactions with owners and distributions to

owners.
43

Continued Changes in Equity

The statement should show the change in
equity for the period resulting from:
net profit or loss for the period
income, expenses, gains and losses (including

prior period adjustments) recognized directly

in equity; and total of these items, and
the cumulative effect of changes in accounting
policies and the correction of fundamental
errors.
44

Continued Changes in Equity

Other changes in equity must also be disclosed
either as part of the statement or in the notes:
capital transactions with owners and distributions to
owners,
the balance of accumulated profit or loss at the
beginning of the period and at the balance sheet date and
the movements for the period, and
a reconciliation of changes in:
each class of equity
share premium
each reserve

45

Notes to the Financial Statements

The notes to the Financial Statement should

be presented in systematic order, and
cross-referenced to the balance sheet,
income and cash flow statement.

46

Continued Notes to
The notes are normally presented in the following
order:
1.
2.
3.
4.

Statement of compliance with IASs.

Statement of measurement bases and accounting policies
Supporting items for information presented in the basic statements
Other disclosures, including:
a. Contingencies, commitments and other financial

b.

disclosure, and
Non-financial disclosure.

The notes should:

Present basis of preparation and accounting policies

(including measurement basis)
Information required by IASs.
Additional useful information not presented elsewhere.

47

Other Disclosures
If not disclosed elsewhere in information published
with the financial statements, the enterprise must
disclose the following:
the domicile and legal form of the enterprise, its

country of incorporation and the address of

registered office (or, if different, the address of its
principal place of business);
a description of its operations and principal activities;
the name of its parent enterprise and ultimate parent
enterprise; and
either the number of employees at the end of the
period or the average for the period.
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