Objective
of IAS 1
The
objective of IAS 1 (2007) is to prescribe the basis for 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 recognising, measuring, and
disclosing specific transactions are addressed in other Standards and
Interpretations. [IAS 1.3]
Scope
Applies to all general purpose
financial statements based on International Financial Reporting Standards. [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]
Objective
of financial statements
The objective of general
purpose financial statements is 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. To meet that objective,
financial statements provide information about an entity's: [IAS 1.9]
o
assets
o
liabilities
o
equity
o
income and expenses, including gains and losses
o
contributions by and distributions to owners
o
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.
Components
of financial statements
A complete set of financial
statements should include: [IAS 1.10]
o
a statement of financial position (balance sheet) at the end of
the period
o
a statement of comprehensive income for the period (or an income
statement and a statement of comprehensive income)
o
a statement of changes in equity for the period
o
a statement of cash flows for the period
o
notes, comprising a summary of accounting policies and other
explanatory notes
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 its financial
statements, it must also present a statement of financial position (balance
sheet) as at the beginning of the earliest comparative period.
An entity may use titles for
the statements other than those stated above.
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]
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. The application of IFRSs, with additional disclosure
when necessary, is presumed to result in financial statements that achieve a
fair presentation. [IAS 1.15]
IAS 1 requires that an entity
whose financial statements comply with IFRSs make an explicit and unreserved
statement of such compliance in the notes. Financial statements shall not be
described as complying with IFRSs unless they comply with all the requirements
of IFRSs (including 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 1.16]
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 1.19-20]
Going
concern
An entity preparing IFRS
financial statements is presumed to be 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]
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]
Materiality
and aggregation
Each material class of similar
items must be presented separately in the financial statements. Dissimilar
items may be aggregated only if the are individually immaterial. [IAS 1.29]
Offsetting
Assets and liabilities, and
income and expenses, may not be offset unless required or permitted by an IFRS.
[IAS 1.32]
Comparative
information
IAS 1 requires that comparative
information shall be disclosed in respect of the previous period for all
amounts reported in the financial statements, both face of financial statements
and notes, unless another Standard requires otherwise. [IAS 1.38]
If comparative amounts are
changed or reclassified, various disclosures are required. [IAS 1.41]
Structure
and content of financial statements in general
Clearly identify: [IAS 1.50]
o
the financial statements
o
the reporting enterprise
o
whether the statements are for the enterprise or for a group
o
the date or period covered
o
the presentation currency
o
the level of precision (thousands, millions, etc.)
Reporting
period
There is a presumption that
financial statements will be 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 a warning about
problems of comparability. [IAS 1.36]
Statement
of Financial Position (Balance Sheet)
An entity must normally present
a classified statement of financial position, separating current and non-current
assets and liabilities. Only if a presentation based on liquidity provides
information that is reliable and more relevant may the current/non-current
split be omitted. [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 amounts from the 12-month amounts.
[IAS 1.61]
Current assets are cash; cash equivalent; assets held for
collection, sale, or consumption within the entity's normal operating cycle; or
assets held for trading within the next 12 months. All other assets are
non-current. [IAS 1.66]
Current liabilities are those expected to be settled within the
entity's normal operating cycle or due within 12 months, or those held for
trading, or those for which the entity does not have an unconditional right to
defer payment beyond 12 months. Other liabilities are non-current. [IAS 1.69]
When a long-term debt is
expected to be refinanced under an existing loan facility and the entity has
the discretion the debt is classified as non-current, even if 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
authorisation 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]
Minimum items on the face of
the statement of financial position [IAS 1.54]
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(a)
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property,
plant and equipment
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(b)
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investment
property
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(c)
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intangible
assets
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(d)
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financial
assets (excluding amounts shown under (e), (h), and (i))
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(e)
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investments
accounted for using the equity method
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(f)
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biological
assets
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(g)
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inventories
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(h)
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trade
and other receivables
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(i)
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cash
and cash equivalents
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(j)
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assets
held for sale
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(k)
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trade
and other payables
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(l)
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provisions
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(m)
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financial
liabilities (excluding amounts shown under (k) and (l))
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(n)
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liabilities
and assets for current tax, as defined in IAS
12
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(o)
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deferred
tax liabilities and deferred tax assets, as defined in IAS
12
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(p)
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liabilities
included in disposal groups
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(q)
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non-controlling
interests, presented within equity and
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(r)
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issued
capital and reserves attributable to owners of the parent
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Additional line items may be
needed to fairly present the entity's financial position. [IAS 1.54]
IAS 1 does not prescribe the
format of the balance sheet. 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.
Regarding issued share capital
and reserves, the following disclosures are required: [IAS 1.79]
o
numbers of shares authorised, issued and fully paid, and issued
but not fully paid
o
par value
o
reconciliation of shares outstanding at the beginning and the
end of the period
o
description of rights, preferences, and restrictions
o
treasury shares, including shares held by subsidiaries and
associates
o
shares reserved for issuance under options and contracts
o
a description of the nature and purpose of each reserve within
equity
Statement
of Comprehensive Income
Comprehensive income for a
period includes profit or loss for that period plus other comprehensive income
recognised in that period. As a result of the 2003 revision to IAS 1, the
Standard is now using 'profit or loss' rather than 'net profit or loss' as the
descriptive term for the bottom line of the income statement.
All items of income and expense
recognised in a period must be included in profit or loss unless a Standard or
an Interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit
that some components to be excluded from profit or loss and instead to be
included in other comprehensive income. [IAS 1.89]
The components of other
comprehensive income include:
o
changes in revaluation surplus (IAS 16 and IAS 38)
o
actuarial gains and losses on defined benefit plans recognised
in accordance with IAS 19
o
gains and losses arising from translating the financial
statements of a foreign operation (IAS 21)
o
gains and losses on remeasuring available-for-sale financial
assets (IAS 39)
o
the effective portion of gains and losses on hedging instruments
in a cash flow hedge (IAS 39).
An entity has a choice of
presenting:
o
a single statement of comprehensive income or
o
two statements:
o
an income statement displaying components of profit or loss and
o
a statement of comprehensive income that begins with profit or
loss (bottom line of the income statement) and displays components of other
comprehensive income [IAS 1.81]
Minimum items on the face of
the statement of comprehensive income should include: [IAS 1.82]
o
revenue
o
finance costs
o
share of the profit or loss of associates and joint ventures
accounted for using the equity method
o
tax expense
o
a single amount comprising the total of (i) the post-tax profit
or loss of discontinued operations and (ii) the post-tax gain or loss
recognised on the disposal of the assets or disposal group(s) constituting the
discontinued operation
o
profit or loss
o
each component of other comprehensive income classified by
nature
o
share of the other comprehensive income of associates and joint
ventures accounted for using the equity method
o
total comprehensive income
The following items must also
be disclosed in the statement of comprehensive income as allocations for the
period: [IAS 1.83]
o
profit or loss for the period attributable to non-controlling
interests and owners of the parent
o
total comprehensive income attributable to non-controlling
interests and owners of the parent
Additional line items may be
needed to fairly present the entity's results of operations. [IAS 1.85]
No items may be presented in
the statement of comprehensive income (or in the income statement, if
separately presented) or in the notes as 'extraordinary items'. [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]
o
write-downs of inventories to net realisable value or of
property, plant and equipment to recoverable amount, as well as reversals of
such write-downs
o
restructurings of the activities of an entity and reversals of
any provisions for the costs of restructuring
o
disposals of items of property, plant and equipment
o
disposals of investments
o
discontinuing operations
o
litigation settlements
o
other reversals of provisions
Expenses recognised in profit
or loss should be analysed either by nature (raw materials, staffing costs,
depreciation, etc.) or by function (cost of sales, selling, administrative,
etc). [IAS 1.99] If an entity categorises by function, then additional
information on the nature of expenses – at a minimum depreciation, amortisation
and employee benefits expense – must be disclosed. [IAS 1.104]
Statement
of Cash Flows
Rather than setting out
separate standards for presenting the cash flow statement, IAS 1.111 refers to
IAS 7 Statement of Cash Flows
Statement
of Changes in Equity
IAS 1 requires an entity to
present a statement of changes in equity as a separate component of the
financial statements. The statement must show: [IAS 1.106]
o
total comprehensive income for the period, showing separately
amounts attributable to owners of the parent and to non-controlling interests
o
the effects of retrospective application, when applicable, for
each component
o
reconciliations between the carrying amounts at the beginning
and the end of the period for each component of equity, separately disclosing:
o
profit or loss
o
each item of other comprehensive income
o
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
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]
o
amount of dividends recognised as distributions, and
o
the related amount per share
Notes
to the financial statements
The notes must: [IAS 1.112]
o
present information about the basis of preparation of the
financial statements and the specific accounting policies used
o
disclose any information required by IFRSs that is not presented
elsewhere in the financial statements and
o
provide additional information that is not presented elsewhere
in the financial statements but is relevant to an understanding of any of them
Notes should be
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:
o
a statement of compliance with IFRSs
o
a summary of significant accounting policies applied, including:
[IAS 1.117]
o
the measurement basis (or bases) used in preparing the financial
statements
o
the other accounting policies used that are relevant to an
understanding of the financial statements
o
supporting information for items presented on the face of the
statement of financial position (balance sheet), statement of comprehensive
income (and income statement, if presented), statement of changes in equity and
statement of cash flows, in the order in which each statement and each line
item is presented
o
other disclosures, including:
o
contingent liabilities (see IAS 37) and unrecognised contractual
commitments
o
non-financial disclosures, such as the entity's financial risk
management objectives and policies (see IFRS 7)
Disclosure of judgements. New in the 2003 revision to IAS 1, 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 recognised in the
financial statements. [IAS 1.122]
Examples cited in IAS 1.123
include management's judgements in determining:
o
whether financial assets are held-to-maturity investments
o
when substantially all the significant risks and rewards of
ownership of financial assets and lease assets are transferred to other
entities
o
whether, in substance, particular sales of goods are financing
arrangements and therefore do not give rise to revenue; and
o
whether the substance of the relationship between the entity and
a special purpose entity indicates control
Disclosure of key sources of
estimation uncertainty. Also
new in the 2003 revision to IAS 1, an entity must 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]
The following other note
disclosures are required by IAS 1.126 if not disclosed elsewhere in information
published with the financial statements:
o
domicile and legal form of the entity
o
country of incorporation
o
address of registered office or principal place of business
o
description of the entity's operations and principal activities
o
if it is part of a group, the name of its parent and the
ultimate parent of the group
o
if it is a limited life entity, information regarding the length
of the life
Other disclosures
Disclosures
about dividends
In addition to the
distributions 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 authorised for
issue but not recognised as a distribution to owners during the period, and the
related amount per share and " the amount of any cumulative preference
dividends not recognised.
Capital disclosures
An entity should disclose
information about its objectives, policies and processes for managing capital.
[IAS 1.134] To comply with this, the disclosures include: [IAS 1.135]
o
qualitative information about the entity's objectives, policies
and processes for managing capital, including>
o
description of capital it manages
o
nature of external capital requirements, if any
o
how it is meeting its objectives
o
quantitative data about what the entity regards as capital
o
changes from one period to another
o
whether the entity has complied with any external capital
requirements and
o
if it has not complied, the consequences of such non-compliance.
Disclosures about 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:
o
summary quantitative data about the amount classified as equity
o
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
o
the expected cash outflow on redemption or repurchase of that
class of financial instruments and
o
information about how the expected cash outflow on redemption or
repurchase was determined.
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."
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Term
before 2007 revision of IAS 1
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Term
as amended by IAS 1 (2007)
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balance
sheet
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statement
of financial position
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cash
flow statement
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statement
of cash flows
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income
statement
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statement
of comprehensive income (income statement is retained in case of a
two-statement approach)
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recognised
in the income statement
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recognised
in profit or loss
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recognised
[directly] in equity (only for OCI components)
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recognised
in other comprehensive income
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recognised
[directly] in equity (for recognition both in OCI and equity)
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recognised
outside profit or loss (either in OCI or equity)
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removed
from equity and recognised in profit or loss ('recycling')
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reclassified from equity to
profit or loss as a reclassification adjustment
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Standard
or/and Interpretation
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IFRSs
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on
the face of
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in
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equity
holders
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owners
(exception for 'ordinary equity holders')
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balance
sheet date
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end
of the reporting period
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reporting
date
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end
of the reporting period
|
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after
the balance sheet date
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after
the reporting period
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June 2011: IASB issued amendments to IAS 1
On 16 June 2011, the IASB
published amendments to IAS 1 Presentation of Financial Statements. The
amendments to IAS 1 retain the 'one or two statement' approach at the option of
the entity and only revise the way other comprehensive income is presented:
requiring separate subtotals for those elements which may be 'recycled' (e.g.
cash-flow hedging, foreign currency translation), and those elements that will
not (e.g. fair value through OCI items under IFRS 9).
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Amendments to IAS 1 Presentation of Financial
Statements
o Preserve
the amendments made to IAS 1 in 2007 to require profit or loss and OCI to be
presented together, i.e. either as a single statement of comprehensive
income, or separate income statement and a statement of comprehensive income
— rather than requiring a single continuous statement as was proposed in the
exposure draft
o Require
entities to group items presented in OCI based on whether they are
potentially reclassifiable to profit or loss subsequently. i.e. those that
might be reclassified and those that will not be reclassified
o Require
tax associated with items presented before tax to be shown separately for
each of the two groups of OCI items (without changing the option to present
items of OCI either before tax or net of tax)
o Applicable
to annual periods beginning on or after 1 July 2012, with early adoption
permitted.
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