Presentation of Financial Statements : International Accounting Standards (IAS) 1

IAS 1 Presentation of Financial Statements Overview

Sets out the overall requirements for financial statements, including

 how they should be structured,

 the minimum requirements for their content and overriding concepts such as going concern, the
accrual basis of accounting, and the current/noncurrent distinction.

The standard requires a complete set of financial statements

 statement of financial position,

 a statement of profit or loss and other comprehensive income,
 a statement of changes in equity and
 a statement of cash flows.

IAS 1 was reissued in September 2007 and applies to annual periods beginning on or after 1 January
2009.

IAS 1 Presentation of Financial Statements History

Summary of IAS 1 Objective

IAS 1 (2007)

 is to prescribe the basis for the presentation of general-purpose financial statements,

 to ensure comparability both with the entity's financial statements of previous periods and with
the financial statements of other entities.

IAS 1

 sets out the overall requirements for the presentation of financial statements,
 guidelines for their structure and minimum requirements for their content. [IAS 1.1]
 Standards for recognizing, measuring, and disclosing specific transactions are addressed in other
Standards and Interpretations. [IAS 1.3]

Summary of IAS 1 Scope

Scope

 IAS 1 applies to all general-purpose financial statements that are prepared and presented in
accordance with International Financial Reporting Standards (IFRSS). [IAS 1.2]
 General purpose financial statements are those intended to serve users who are not in a position
to require financial reports tailored to their particular information needs. [IAS 1.7]

Financial Statements

 Are statements issued to communicate accumulated and processed financial information to

users
 These are structured representation of the financial position, financial performance, and cash
flows of an entity
 "General Purpose" financial statements provide financial information to users who are not in a
position that will require an entity to prepare tailored-fit financial statements for their particular
needs.

Financial Statements Objective

 is to provide and communicate 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.
To meet that objective, financial statements provide information about an entity's: [IAS 1.9]
 assets
 liabilities
 equity
 income and expenses, including gains and losses
 contributions by and distributions to owners (in their capacity as owners)
 cash flows.

• That information, along with other information in the notes, assists users of financial statements
in predicting the entity's future cash flows and, in particular, their timing and certainty.

Financial Statement Components

A complete set of financial statements includes: [IAS 1.10]

• a statement of financial position (balance sheet) at the end of the period

• a statement of profit or loss and other comprehensive income for the period (presented as a
single statement, or by presenting the profit or loss section in a separate statement of profit or
loss, immediately followed by a statement presenting compre-hensive income beginning with
profit or loss)
• a statement of changes in equity for the period
• a statement of cash flows for the period
• notes, comprising a summary of significant accounting policies and other explanatory notes

➤ comparative information prescribed by the standard.

• A statement of financial position as at the beginning of the preceding period when an entity applies an
accounting policy retrospectively or makes a retrospective restatement of items in its financial
statements, or when it reclassifies items in the financial statements6

Financial Statements Components

• An entity may use titles for statements other than those stated above. All financial statements are
required to be presented with equal prominence. [IAS 1.10]

• Reports that are presented outside of the financial statements - including financial reviews by
management, environmental reports, and value-added statements - are outside the scope of IFRSS. [IAS
1.14]

Features of Financial Statements Fair presentation and compliance with IFRSS

 The financial statements must "present fairly" the financial position, financial performance and
cash flows of an entity.
 Fair presentation 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 set out in the Framework.
 IAS 1 requires an entity whose financial statements comply with IFRSS to make an explicit and
unreserved statement of such compliance in the notes.
 Financial statements cannot be described as complying with IFRSS unless they comply with all
the requirements of IFRSS (which includes International Financial Reporting Standards,
International Accounting Standards, IFRIC Interpretations and SIC Interpretations). [IAS 1.16]
 Inappropriate accounting policies are not rectified either by disclosure of the accounting policies
used or by notes or explanatory material. [IAS 1.18]
 IAS 1 acknowledges that, in extremely rare circumstances, management may conclude that
compliance with an IFRS requirement would be so misleading that it would conflict with the
objective of financial statements set out in the Framework.
 In such a case, the entity is required to depart from the IFRS requirement, with detailed
disclosure of the nature, reasons, and impact of the departure. [IAS 1.19-21]
 The application of IFRSS, with additional disclosure, when necessary, is presumed to result in
financial statements that achieve a fair presentation. [IAS 1.15]

Features of Financial Statements Going concern

• The Conceptual Framework notes that financial statements are normally prepared assuming the
entity is a going concern and will continue in operation for the foreseeable future. [Conceptual
Framework, paragraph 4.1]
• IAS 1 requires management to make an assessment of an entity's ability to continue as a going
concern.
• If management has significant concerns about the entity's ability to continue as a going concern,
the uncertainties must be disclosed.
• If management concludes that the entity is not a going concern, the financial statements should
not be prepared on a going concern basis, in which case IAS 1 requires a series of disclosures.
[IAS 1.25]
• If an entity has a history of profitable operations and has a ready access to financial resources,
the entity may reach a conclusion that the going concern basis of accounting is appropriate
without a detailed analysis.

Features of Financial Statements

Accrual basis of accounting

• IAS 1 requires that an entity prepare its financial statements, except for cash flow information, using
the accrual basis of accounting. [IAS 1.27]

Consistency of presentation

• The presentation and classification of items in the financial statements shall be retained from one
period to the next unless a change is justified either by a change in circumstances or a requirement of a
new IFRS. [IAS 1.45]
Offsetting

• Assets and liabilities, and income and expenses, may not be offset unless required or permitted by an
IFRS. [IAS 1.32]

Features of Financial Statements Materiality and Aggregation

• Information is material if omitting, misstating or obscuring it could reasonably be expected to

influence decisions that the primary users of general-purpose financial statements make on the
basis of those financial statements, which provide financial information about a specific
reporting entity. [IAS 1.7]*
• Each material class of similar items must be presented separately in the financial statements.
Dissimilar items may be aggregated only if they are individually immaterial. [IAS 1.29]
• However, information should not be obscured by aggregating or by providing immaterial
information, materiality considerations apply to the all parts of the financial statements, and
even when a standard requires a specific disclosure, materiality considerations do apply. [IAS
1.30A-31]

* Clarified by Definition of Material (Amendments to IAS 1 and IAS 8), effective 1 January 2020.

Features of Financial Statements Comparative information

• IAS 1 requires that comparative information to be disclosed in respect of the previous period for
all amounts reported in the financial statements, both on the face of the financial statements
and in the notes, unless another Standard requires otherwise.
• Comparative information is provided for narrative and descriptive where it is relevant to
understanding the financial statements of the current period. [IAS 1.38]

• An entity is required to present at least two of each of the following primary financial statements: [IAS
1.38A]

 statement of financial position*

 statement of profit or loss and other comprehensive income
 separate statements of profit or loss (where presented)
 statement of cash flows
 statement of changes in equity
 related notes for each of the above items.

*A third statement of financial position is required to be presented if the entity retrospectively applies
an accounting policy, restates items, or reclassifies items, and those adjustments had a material effect on
the information in the statement of financial position at the beginning of the comparative period. [IAS
1.40A]

Where comparative amounts are changed or reclassified, various disclosures are required. [IAS 1.41]

Features of Financial Statements Reporting period

• The financial statements are prepared at least annually.

• If the annual reporting period changes and financial statements are prepared for a different
period, the entity must disclose the reason for the change and state that amounts are not
entirely comparable. [IAS 1.36] The entity must disclose the following
 Period covered, shorter or longer
 Reason for using a longer or shorter period
 The fact that the amounts presented in the financial statements are not entirely comparable

Financial Statements Structure and content

IAS 1 requires an entity to clearly identify: [IAS 1.49-51]

 the financial statements, which must be distinguished from other information in a published
document
 each financial statement and the notes to the financial statements.

In addition, the following information must be displayed prominently, and repeated as necessary: [IAS
1.51]

 the name of the reporting entity and any change in the name
  whether the financial statements are a group of entities or an individual entity
 information about the reporting period
 the presentation currency (as defined by IAS 21 The Effects of Changes in Foreign Exchange
Rates)
 the level of rounding used (e.g. thousands, millions).

Statement of Financial Position (Balance Sheet)

Current and non-current classification

• An entity must normally present a classified statement of financial position, separating current
and non-current assets and liabilities,
• When exception applies, presentation of assets and liabilities is based in the order of their
liquidity [IAS 1.60]
• In either case, if an asset (liability) category combines amounts that will be received (settled)
after 12 months with assets (liabilities) that will be received (settled) within 12 months, note
disclosure is required that separates
 the longer-term, more than 12-months, amounts
 the shorter-term, less than 12-month, amounts. [IAS 1.61]

Current assets are assets that are: [IAS 1.66]

 expected to be realized in the entity's normal operating cycle

 held primarily for the purpose of trading
 expected to be realized within 12 months after the reporting period
 cash and cash equivalents (unless restricted).

All other assets are non-current. [IAS 1.66]

Current liabilities are those: [IAS 1.69]

 expected to be settled within the entity's normal operating cycle

 held for purpose of trading
 due to be settled within 12 months
 for which the entity does not have the right at the end of the reporting period to defer
settlement beyond 12 months.

Other liabilities are non-current.

• When a long-term debt is expected to be refinanced under an existing loan facility, and the
entity has the discretion to do so, the debt is classified as non-current, even if the liability
would otherwise be due within 12 months. [IAS 1.73]
• If a liability has become payable on demand because an entity has breached an undertaking
under a long-term loan agreement on or before the reporting date, the liability is current,
even if the lender has agreed, after the reporting date and before the authorization of the
financial statements for issue, not to demand payment as a consequence of the breach. [IAS
1.74]
• However, the liability is classified as non-current if the lender agreed by the reporting date
to provide a period of grace ending at least 12 months after the end of the reporting period,
within which the entity can rectify the breach and during which the lender cannot demand
immediate repayment. [IAS 1.75]
• Settlement by the issue of equity instruments does not impact classification. [IAS 1.76B]

Statement of Financial Position (Balance Sheet) Line items

• to be included on the face of the statement are: [IAS 1.54]

a) property, plant and equipment
b) investment property
c) intangible assets
d) financial assets (excluding amounts shown under (e), (h), and (i))
e) investments accounted for using the equity method
f) biological assets
g) inventories
h) trade and other receivables
i) cash and cash equivalents
 j) assets held for sale
k) trade and other payables
l) provisions
m) financial liabilities (excluding amounts shown under (k) and (1))
n) current tax liabilities and current tax assets, as defined in IAS 12
o) deferred tax liabilities and deferred tax assets, as defined in IAS 12 p)
p) liabilities included in disposal groups
q) non-controlling interests, presented within equity
r) issued capital and reserves attributable to owners of the parent.

• Additional line items, headings and subtotals may be needed to fairly present the entity's
financial position. [IAS 1.55]
• When an entity presents subtotals, those subtotals shall be comprised of line items made up of
amounts recognized and measured in accordance with IFRS; be presented and labelled in a clear
and understandable manner; be consistent from period to period; and not be displayed with
more prominence than the required subtotals and totals. [IAS 1.55A]*
• Further sub-classifications of line items presented are made in the statement or in the notes, for
example: [IAS 1.77-78]:
 classes of property, plant and equipment
 disaggregation of receivables
 disaggregation of inventories in accordance with IAS 2 Inventories
 disaggregation of provisions into employee benefits and other items
 classes of equity and reserves.

* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.

Statement of Financial Position (Balance Sheet) Format

IAS 1 does not prescribe the format of the statement of financial position.

• Assets can be presented current then non-current, or vice versa, and

• liabilities and equity can be presented current then non-current then equity, or vice versa.
• A net asset presentation (assets minus liabilities) is allowed. The long- term financing approach
used in UK and elsewhere - fixed assets + current assets - short term payables = long-term debt
plus equity - is also acceptable.

Financial position may be presented as

• Account Form, looks like a T-Account, Assets on the left side, Liabilities and Capital on the right
side.
• Report Form, presents Assets, Liabilities and Capital on a continues format. Liabilities after total
Assets, Equities after total Liabilities.
• Financial Position Form, emphasizes the working capital of the entity, in this format, net assets
are equal to the equity

Share capital and reserves

• Regarding issued share capital and reserves, the following disclosures are required: [IAS 1.79]
 numbers of shares authorized, issued and fully paid, and issued but not fully paid
 par value (or that shares do not have a par value)
 a reconciliation of the number of shares outstanding at the beginning and the end of the period
 description of rights, preferences, and restrictions
 treasury shares, including shares held by subsidiaries and associates
 shares reserved for issuance under options and contracts
 a description of the nature and purpose of each reserve within equity.

• Additional disclosures are required in respect of entities without share capital and where an entity has
reclassified puttable financial instruments. [IAS 1.80-80A]

Statement of Comprehensive Income

Concepts of profit or loss and comprehensive income

• Comprehensive income is defined as

 "the change in equity during a period other than changes resulting from with owners in their
capacity as owners.". [IAS 1.7]
 Includes profit or loss and other comprehensive income

• Profit or loss is defined as

 "the total of income less expenses, excluding the components of other comprehensive income".

-Other comprehensive income is defined as

 " comprising items of income and expense including reclassification adjustments that are not
recognized in profit or loss as required or permitted by other IFRSs".

Comprehensive income for the period = Profit or loss + Other comprehensive income

Statement of Comprehensive Income

•An entity shall present the following items, in addition to the profit or loss and other
comprehensive income sections, as allocation of profit or loss and other comprehensive
income for the period:
• Profit or loss and comprehensive income for the period attributable to:
 Non-controlling interest
 Owners of the parent

Statement of Comprehensive Income And Other Comprehensive Income

• Examples of items recognized outside of profit or loss

 Changes in revaluation surplus where the revaluation method is used under IAS 16 Property,
Plant and Equipment and IAS 38 Intangible Assets
 Remeasurements of a net defined benefit liability or asset recognized in accordance with IAS 19
Employee Benefits (2011)
 Exchange differences from translating functional currencies into presentation currency in
accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates
 Gains and losses on remeasuring available-for-sale financial assets in accordance with IAS 39
Financial Instruments: Recognition and Measurement
 The effective portion of gains and losses on hedging instruments in a cash flow hedge under IAS
39 or IFRS 9 Financial Instruments
 Gains and losses on remeasuring an investment in equity instruments where the entity has
elected to present them in other comprehensive income in accordance with IFRS 9
 The effects of changes in the credit risk of a financial liability designated as at fair value through
profit and loss under IFRS 9.

Statement of Comprehensive Income Choice in presentation and basic requirements

• In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires
the correction of errors and the effect of changes in accounting policies to be recognized
outside profit or loss for the current period. [IAS 1.89]
• An entity has a choice of presenting:
 a single statement of profit or loss and other comprehensive income, with profit or loss and
other comprehensive income presented in two sections,
 two statements which shows:
 a separate statement of profit or loss
 a statement of comprehensive income, immediately following the statement of profit or loss and
beginning with profit or loss [IAS 1.10A]

• The statement(s) must present: [IAS 1.81A]

• profit or loss
• total other comprehensive income
• comprehensive income for the period
• an allocation of profit or loss and comprehensive income for the period between non-controlling
interests and owners of the parent.
Profit or loss section or statement

• The following minimum line items must be presented in the profit or loss section (or separate
statement of profit or loss, if presented): [IAS 1.82- 82A]

 revenue
 gains and losses from the derecognition of financial assets measured at amortized cost
 finance costs
 share of the profit or loss of associates and joint ventures accounted for using the equity method
 certain gains or losses associated with the reclassification of financial assets
 tax expense
 a single amount for the total of discontinued items

• Expenses recognized in profit or loss should be analyzed either

 by nature (raw materials, staffing costs, depreciation, etc.) or

 by function (cost of sales, selling, administrative, etc). [IAS 1.99]

• If an entity categorizes by function, then additional information on the nature of expenses - at a

minimum depreciation, amortization and employee benefits expense - must be disclosed. [IAS 1.104]

Other comprehensive income section

• The other comprehensive income section is required to present line items which are classified by their
nature, and grouped between those items that will or will not be reclassified to profit and loss in
subsequent periods. [IAS 1.82A]

• An entity's share of OCI of equity-accounted associates and joint ventures is presented in aggregate as
single line items based on whether or not it will subsequently be reclassified to profit or loss. [IAS
1.82A]*

• Clarified by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.

When an entity presents subtotals,

 those subtotals shall be comprised of line items made up of amounts recognized and measured
in accordance with IFRS;
 be presented and labeled in a clear and understandable manner;
 be consistent from period to period;
 not be displayed with more prominence than the required subtotals and totals; and reconciled
with the subtotals or totals required in IFRS. [IAS 1.85A-85B]

*Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.

Other requirements

 Additional line items may be needed to fairly present the entity's results of operations. [IAS
1.85]
 Items cannot be presented as 'extraordinary items' in the financial statements or in the
notes. [IAS 1.87]
 Certain items must be disclosed separately either in the statement of comprehensive income
or in the notes, if material, including: [IAS 1.98]
 write-downs of inventories to net realizable value or of property, plant, and equipment to
recoverable amount, as well as reversals of such write-downs
 restructurings of the activities of an entity and reversals of any provisions for the costs of
restructuring
 disposals of items of property, plant and equipment
 disposals of investments
 discontinuing operations
 litigation settlements
 other reversals of provisions
Statement of Changes in Equity

IAS 1 requires an entity to present a separate statement of changes in equity. The statement must show:
[IAS 1.106]

 total comprehensive income for the period, showing separately amounts attributable to owners
of the parent and to non-controlling interests
 the effects of any retrospective application of accounting policies or restatements made in
accordance with IAS 8, separately for each component of other comprehensive income
 reconciliations between the carrying amounts at the beginning and the end of the period for
each component of equity, separately disclosing:
 profit or loss
 other comprehensive income*
 transactions with owners, showing separately contributions by and distributions to owners and
changes in ownership interests in subsidiaries that do not result in a loss of control

* An analysis of other comprehensive income by item is required to be presented either in the statement
or in the notes. [IAS 1.106A]

The following amounts may also be presented on the face of the statement of changes in equity, or they
may be presented in the notes: [IAS 1.107]

 the amount of dividends recognized as distributions

 the related amount of dividends per share.

Statement of Cash Flows

• Cash flow information provides users of financial statements with a basis to assess the ability of the
entity to generate cash and cash equivalent and the needs of the entity to utilize this cash flow.

• IAS 7 sets out requirements for the presentation and disclosure of cashflow information

Notes to the Financial Statements

The notes must: [IAS 1.112]

 present information about the basis of preparation of the financial statements and the
specific accounting policies used
 disclose any information required by IFRSS that is not presented elsewhere in the financial
statements and
 provide additional information that is not presented elsewhere in the financial statements
but is relevant to an understanding of any of them

Notes are presented in a systematic manner and cross-referenced from the face of the financial
statements to the relevant note. [IAS 1.113]

IAS 1.114 suggests that the notes should normally be presented in the following order:*

 a statement of compliance with IFRSS

 a summary of significant accounting policies applied, including: [IAS 1.117]
 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

• supporting information for items presented on the face of the statement of financial position
(balance sheet), statement(s) of profit or loss and other comprehensive income, statement of
changes in equity and statement of cash flows, in the order in which each statement and each
line item is presented
• other disclosures, including:
o contingent liabilities (see IAS 37) and unrecognized contractual commitments
o non-financial disclosures, such as the entity's financial risk management objectives and policies
(see IFRS 7 Financial Instruments: Disclosures)
* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016, clarifies this order just to be an
example of how notes can be ordered and adds additional examples of possible ways of ordering the
notes to clarify that understandability and comparability should be considered when determining the
order of the notes.

Other Disclosures Judgements and key assumptions

• An entity must disclose, in the summary of significant accounting policies or other notes, the
judgements, apart from those involving estimations, that management has made in the process of
applying the entity's accounting policies that have the most significant effect on the amounts recognized
in the financial statements. [IAS 1.122]

• Examples cited in IAS 1.123 include management's judgements in determining:

 when substantially all the significant risks and rewards of ownership of financial assets and lease
assets are transferred to other entities
 whether, in substance, particular sales of goods are financing rrangements and therefore do not
give rise to revenue.

• An entity must also disclose, in the notes, information about the key assumptions concerning the
future, and other key sources of estimation uncertainty at the end of the reporting period, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year. [IAS 1.125] These disclosures do not involve disclosing budgets or forecasts. [IAS
1.130]

Other Disclosures Dividends

In addition to the distribution of information in the statement of changes in equity (see above), the
following must be disclosed in the notes: [IAS 1.137]

 the amount of dividends proposed or declared before the financial statements were authorized
for issue, but which were not recognized as a distribution to owners during the period, and the
related amount per share
 the amount of any cumulative preference dividends not recognized.

Other Disclosures Capital Disclosures

An entity discloses information about its objectives, policies and processes for managing capital. [IAS
1.134] To comply with this, the disclosures include: [IAS 1.135]

 qualitative information about the entity's objectives, policies and processes for managing
capital, including>
 description of capital it manages
 nature of external capital requirements, if any
 how it is meeting its objectives
 quantitative data about what the entity regards as capital
 changes from one period to another
 whether the entity has complied with any external capital requirements and
 if it has not complied, the consequences of such non-compliance.

Other Disclosures (Puttable Financial Instruments)

IAS 1.136A requires the following additional disclosures if an entity has a puttable instrument that is
classified as an equity instrument:

 summary quantitative data about the amount classified as equity

 the entity's objectives, policies and processes for managing its obligation to repurchase or
redeem the instruments when required to do so by the instrument holders, including any
changes from the previous period
 the expected cash outflow on redemption or repurchase of that class of financial instruments
and
 information about how the expected cash outflow on redemption or repurchase was
determined.
The following other note disclosures are required by IAS 1 if not disclosed elsewhere in information
published with the financial statements: [IAS 1.138]

 domicile and legal form of the entity

 country of incorporation
 address of registered office or principal place of business
 description of the entity's operations and principal activities
 if it is part of a group, the name of its parent and the ultimate parent of the group
 if it is a limited life entity, information regarding the length of the life

Terminology

• The 2007 comprehensive revision to IAS 1 introduced some new terminology. Consequential
amendments were made at that time to all of the other existing IFRSS, and the new terminology
has been used in subsequent IFRSS including amendments.
• IAS 1.8 states: "Although this Standard uses the terms 'other comprehensive income', 'profit or
loss' and 'total comprehensive income', an entity may use other terms to describe the totals as
long as the meaning is clear.
• For example, an entity may use the term 'net income' to describe profit or loss."
• Also, IAS 1.57(b) states: "The descriptions used, and the ordering of items or aggregation of
similar items may be amended according to the nature of the entity and its transactions, to
provide information that is relevant to an understanding of the entity's financial position."