IAS 1 – Presentation of Financial Statements
Description
IAS 1 provides guidelines in relation to the presentation, structure and content of Financial Statements designed for the purpose of general use.
The standard aims at providing comparability of financials of a Company over the years as well as with the Financial Statements of other companies.
Scope
This standard will be used in the preparation and presentation of Financial Statements.
This standard is not applicable to Consolidated Financial Statements (IFRS 10) and Separate Financial Statements (IAS 27).
This standard applies equally to all Entities. No matter there are specific standards that govern the Consolidated Financial Statements (IFRS 10) and Separate Financial Statements (IAS 27), this standard applies equally to all Entities in the presentation of their Financial Statements.
Important Definitions
Financial Statements designed for the purpose of general users: The Financial Statements that are designed for Financial Statements users who do not have the authority to demand specific financials from the Entity tailored to meet their information requirements.
Not practicable: Fulfilling a requirement or a part of a standard is not practicable if the Entity cannot apply a standard or one or more of its requirements after making all necessary steps to applying such requirements.
IFRS: IFRS are the requirements to apply uniform accounting for all Entities. These include:
- IFRS
- IAS
- IFRIC Interpretations; and
- SIC Interpretations.
Material Omissions: Misstatements or omissions that could influence the decisions of users made based on certain information in the Financial Statements. Users in the above definition should have appropriate know-how of accounting to make economic decisions.
Notes: Notes to the Financial Statements provide disclosures about line items shown in the Financial Statements (balance sheet, income statement and statement of cash flows). They provide narrative information and disaggregation and movement of items.
Other Comprehensive Income (OCI): OCI is not recognized in the profit or loss statement and is shown separately. The income and expenses in other comprehensive income are either required by standards to show these in a separate section from profit or loss or an option exists in standards to show these as either in OCI or P&L.
The components of other comprehensive income include:
- Fair valuation changes on revaluation of assets under IAS 16
- Remeasurement of certain employee benefits under IAS 19
- Translation effects arising from the translation of an outlandish company under IAS 21
- Effects of changes on equity investment categorized as “Fair Value through Comprehensive Income” under IFRS 9
- Effects of changes on financial assets categorized as “Fair value through Comprehensive Income” under IFRS 9
- Under IFRS 9, changes in fair values of a liability designated as “Fair Value through Profit or loss” provided that such fair values are attributed to the credit risk of the liability
- Certain other elements under IFRS 9 (effective gain on cash flow hedges and intrinsic value of options)
Owners: Holders of equity instrument e.g., shareholders of share capital.
Profit or Loss: P&L means income minus expenses. But it does not include items of OCI.
Amounts that can be classified to income statement from OCI: Such items are reclassification of amounts to P&L from other comprehensive income recognized in OCI in the recent or past period.
Total of Comprehensive Income (TCI): TCI represents the net difference in equity from the prior period to the current period except for the effect of transactions contributed directly by the equity participants (e.g. direct issue of share capital). Conversely, it is the net impact of all items of profit and loss and other comprehensive income.
Use of Terms
IAS 1 includes terms like Other Comprehensive Income and Profit or Loss, other terms can also be used if they convey a clear meaning. For example, Net Income can also be used for Profit or Loss.
Objective of Statements Prepared under IAS 1
Financial Statements represent balance sheet and profit or loss of a Company. These Financial Statements inform users about the balance sheet, profit or loss and liquidity issues of a Company. However, it is presumed that users are knowledgeable adequately in accounting and economics to make informed decisions. Financial Statements also show the performance of management’s use of the assets provided to it.
Financial Statements provide information about an Entity’s:
- Receivables and other assets;
- Dues and payables to others;
- Capital;
- Revenue and expenses;
- Transaction with shareholders; and
- Use and generation of cash and cash equivalents in various activities.
Complete Set of Financial Statements
Comprises of:
- Balance Sheet (IAS 1 uses the term Statement of Financial Position for Balance Sheet)
- A profit or loss and other comprehensive income statement (also called an income statement)
- Changes in equity
- Statement of cash flows (IAS 7)
- Notes to the Financial Statements (comprising of quantitative and qualitative information about various line items included in the Financial Statements)
- Comparative information i.e., information (both financial and narrative) for the comparative period; and
- In case of a restatement under IAS 8, the 3rd Statement of Financial Position in addition to the current year Statement of Financial Position and prior year (i.e. comparative) Statement of Financial Position
Titles used in this standard for various statements are not mandatory. Other appropriate titles can also be used. For example, ‘Statement of Comprehensive Income’ can be used instead of ‘Statement of Profit or Loss and Other Comprehensive Income’.
Single Statement of Profit or Loss or Two Separate Statements
An Entity can show either two separate statements i.e.
- Statement of P&L, and
- Statement of OCI OR showing both these sections separately in one statement.
The profit or loss section will be presented first which will be followed by the ‘other comprehensive income section’.
If the two statements are shown separately, first statement of profit or loss will be shown and then the Statement of Other Comprehensive Income.
In the Statement of Other Comprehensive Income, the first line-item will start with “profit or loss” showing the net profit coming from the Statement of Profit or Loss.
Example of Statement of Profit or Loss and Other Comprehensive Income Shown Separately as Two Separate Statements:
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20X0 |
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Revenue |
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XX |
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Cost of sales or Cost of services |
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(XX) |
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Gross profit or (loss) |
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(XX) |
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Other income/miscellaneous income |
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XX |
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Distribution and marketing expenses |
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(XX) |
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Administrative and general expenses |
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(XX) |
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Other expenses |
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(XX) |
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Interest costs |
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(XX) |
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Share of profit/(loss) of associates and joint ventures |
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XX |
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XX |
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Income tax expense/(credit) |
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(XX) |
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XX |
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Loss for the period from discontinued operations |
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(XX) |
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XX |
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20X0 |
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(XXX) |
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Gains on revaluation of property and equipment |
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XXX |
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Remeasurements of defined benefit pension plans |
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(XXX) |
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Equity investments at FVOCI – net change in fair value |
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XXX |
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Equity-accounted investees – share of OCI |
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XXX |
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Share of other comprehensive income of associates |
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XXX |
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Income tax relating to items that will not be reclassified |
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(XXX) |
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XXX |
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Exchange differences on translation of foreign operations |
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XXX |
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The effective portion of cash flow hedges |
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XXX |
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(XXX) |
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XXX |
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Other comprehensive income for the period, net of tax |
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XXX |
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XXX |
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Profit attributable to: |
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Owners of the parent |
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XXX |
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Non-controlling interests |
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XXX |
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XXX |
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Total comprehensive income attributable to: |
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Owners of the parent |
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XXX |
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Non-controlling interests |
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XXX |
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XXX |
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Earnings per share (in currency units): |
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Basic |
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XXX |
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Diluted |
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XXX |
Example of Statement of Profit or Loss and Other Comprehensive Income Shown Together as one Statement:
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20X0 |
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Revenue |
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XX |
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Cost of sales or Cost of services |
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(XX) |
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Gross profit or (loss) |
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(XX) |
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Other income/miscellaneous income |
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XX |
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Distribution and marketing expenses |
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(XX) |
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Administrative and general expenses |
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(XX) |
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Other expenses |
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(XX) |
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Interest costs |
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(XX) |
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Share of profit/(loss) of associates and joint ventures |
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XX |
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XX |
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Income tax expense/(credit) |
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(XX) |
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XX |
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Loss for the period from discontinued operations |
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(XX) |
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XX |
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Gains on revaluation of property and equipment |
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XXX |
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Remeasurements of defined benefit pension plans |
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(XXX) |
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Equity investments at FVOCI – net change in fair value |
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XXX |
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Equity-accounted investees – share of OCI |
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XXX |
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Share of other comprehensive income of associates |
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XXX |
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Income tax relating to items that will not be reclassified |
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(XXX) |
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XXX |
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Exchange differences on translation of foreign operations |
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XXX |
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The effective portion of cash flow hedges |
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XXX |
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(XXX) |
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XXX |
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Other comprehensive income for the period, net of tax |
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XXX |
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XXX |
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Profit attributable to: |
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Owners of the parent |
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XXX |
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Non-controlling interests |
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XXX |
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XXX |
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Total comprehensive income attributable to: |
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Owners of the parent |
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XXX |
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Non-controlling interests |
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XXX |
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XXX |
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Earnings per share (in currency units): |
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Basic |
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XXX |
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Diluted |
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XXX |
Equal Prominence of all Financial Statements
All statements will be shown with equal prominence in a complete set of Financial Statements. Other documentaries by management in the Financial Statements do not fall under IFRS e.g. review reports by management.
True and Fair Presentation of FS
Financial Statements presented as per IFRSs should achieve fair presentation. This means they need to show faithful presentation of facts and show assets, liabilities, income, and expenses as depicted in the compliance framework. Additional disclosures where necessary will be made to lead Financial Statements towards a true and fair presentation.
An Entity will clearly show in its Financial Statements that Financial Statements comply with IFRS in case they are prepared as per the requirements of IFRS and complying with IFRS.
IAS 1 further requires an Entity with regards to fair presentation of its FS:
- To comply with the requirements of IAS 8 if applicable.
- Show knowledge and provide data that is relevant for users to make decisions.
- Further disclosures should be given where necessary in addition to those required under IFRS to highlight the aspects of certain conditions and happenings during the period.
An Entity cannot rectify an accounting misstatement, inappropriate accounting policy or insufficient disclosure by way of additional disclosures in notes or other explanatory information. For example, if an Entity has prepared Financial Statements in which inventory is valued under the ‘Last in First Out’ (LIFO) method, it cannot rectify its Financial Statements by an additional disclosure showing the impact of inventory valuation under the ‘First in First Out’ method. LIFO is not allowed to be used under IFRS. Hence Financial Statements prepared under LIFO cannot be referred to as ‘prepared as per IFRS’.
In extremely rare circumstances, where it would be misleading to comply with the requirements of a standard because it is against the general accounting objectives, the Company will withdraw from the requirements of that standard if the applicable regulations allow to do so.
In case of not applying the requirement of a standard as discussed in the above paragraph, the Entity will make a disclosure about:
- That it has obtained a fair presentation of its balance sheet, P&L and its cash flows.
- That management has ensured that all other IFRS and their requirements are duly met except for the IFRS departed from.
- The description of the IFRS whose requirements have not been complied with, along with reasons for such non-compliance and how and why compliance with such standard would be misleading and conflicting with the framework. It shall also disclose the treatment and the effect that should have been as per IFRS if no departure has been done from the requirements of such IFRS, and
- The financial effect of such departure on each item in the Financial Statements for all periods presented (i.e., including comparatives).
Sometimes in very exceptional situations, when management believes that departure from a standard is necessary as it is misleading and against the objectives specified by the framework, however, the regulatory framework does not allow such understating of such requirements of the IFRS, the Company will disclose:
- Description of IFRS, the issue in question, and reasons, why management believes compliance with the standard is such misleading that it violates the basic objective of the framework.
- The financial effect of such departure on component items included in Financial Statements for all periods presented (i.e., including comparatives).
Conflict may occur with the objectives of the framework and the Financial Statements when the facts disclosed and items presented do not represent the facts and circumstances in a true and honest way and consequently, it would be likely to affect the economic decisions made by users based on this information. To assess whether the requirement of a standard is extremely misleading and goes against the basic framework objectives, the following should be considered:
- Why such objective cannot be achieved by complying with the requirement of such standards in particular circumstances
- How do the Company’s specific situation or circumstances are different from other Entities that apply the requirement of such standard.
If other Entities in similar circumstances apply such standard and don’t assess it to be extremely misleading as to deter objectives of the basic framework, it is a rebuttable presumption that no such misleading conflict exists.
Going Concern
An Entity will assess its use of going concern basis at least twelve months from the date of preparation of Financial Statements. Financial Statements will be prepared on the assumption that Entity will continue its operations in the future. If, however, such assumption is not valid, then Financial Statements will be prepared on some other relevant basis.
When there exist material uncertainties affecting going concern assumption, management will need to disclose these uncertainties.
When Financial Statements are not prepared on the basis of going concern, IFRS may not apply and the Entity needs to apply another basis for preparing such non-going concern Financial Statements.
Under such circumstances, the Entity will provide a disclosure about the fact that Financial Statements are not prepared on the basis of going concern, along with the description on what basis Financial Statements are prepared and the justifications for not using the assumption of going concern.
A number of factors need to be considered to assess the going concern basis of an Entity e.g., profitability, future cash flows, nature of operations, liquidity trends and ratios, liabilities maturity dates etc. Such assessment needs to be made for at least twelve months from the date of preparation of such Financial Statements.
Assumption of Accrual Concept
Except for the statement of cash flows, all other statements are prepared based on accrual concept.
Accrual concept means that expense and income (as well as other transactions i.e., assets and liabilities) are recorded when they occur (and fulfil the requirements of standards and the framework for their recognition criteria and definitions) irrespective of when receipts and payments against these transactions are affected.
Concept of Materiality and Accumulation
Material items of similar nature are grouped together and shown as a separate line item. Items that are dissimilar shall be shown as separately if they are immaterial. If an item is immaterial, it is shown as an aggregate of other such items.
An immaterial item may need to be shown separately from the Financial Statements i.e. in notes.
IFRS requires certain information to be included in the Financial Statements and notes. A Company is not required to disclose this information if it is immaterial. This is true even for those requirements of standards that are deemed as minimum requirements.
An Entity also needs to consider whether additional disclosures (in addition to those required by IFRS and IAS) are needed to enable users of Financial Statements the impact of transactions or events.
Offsetting
An Entity shall not offset items of income and expenses or assets and liabilities if it is not required or allowed by an IFRS.
Offsetting does not include showing assets after deducting their allowances e.g., showing trade receivables net of impairment allowance does not constitute offsetting.
As per IFRS 15, revenue should equal to the consideration which it expects to entitle against the provision of goods or services. Such consideration may include rebates and discounts and revenue will be recorded net of these rebates and discounts.
An Entity has other transactions which are not relating to main revenue directly however, they may be necessary for principal revenue processes. A Company shows such expenses as net of income when such disclosure shows the substance of these transactions. For example:
- The selling expenses on disposal of property and equipment are deducted from the selling price and the net sale price is recorded against the net book value of asset to reflect the income or expense on disposal. These selling expenses are not separately recorded.
- A provision under IAS 37 may be recorded net of any reimbursements.
- Similarly, an Entity may present income and expenses as net arising from similar transactions e.g. foreign currency income or loss. However, if these are material, they will be shown separately as gross.
When Financial Statements should be Produced?
The minimum frequency of reporting for Financial Statements should be annually. In case of a change of period end of an Entity to a different period end e.g., using a shorter or longer period end, the Company shall disclose:
- The reasons for such change in the financial period covered in the Financial Statements
- Comparative periods presented are not comparable due to difference in length of the two periods presented.
Presenting and preparing FS for a period of less than one year is allowed by the standard.
Minimum Comparative Information
Comparative information is required for all amounts presented for the current year unless permitted otherwise by the standards. Narrative disclosures will be made for comparatives if they are relevant to help users understand the Financial Statements.
Sometimes information for narrative disclosures may be relevant to users for example, in the case of legal disputes that were initiated in a prior year and resolved during the year, provision of information for the prior period regarding the initiation of this dispute may help users to understand the nature of the dispute.
At a minimum, an Entity will prepare and present 2 statement of financial position, 2 statement of profit or loss and other comprehensive income, 2 statement of changes in equity and cash flows as well as 2 statements of notes. One such statement is for the comparative period and the other for the current period.
Additional Comparative Information
An Entity may present additional comparative information in addition to the above minimum comparative information. But such information should be prepared as per the requirements of IFRS.
An Entity can also present a third statement of profit or loss and other comprehensive income (i.e., in total three such statements, a statement for the current period, one for the comparative period and the third for the additional comparative period). However, an Entity is not required to prepare a third comparative statement for the balance sheet, statement of changes in equity and statement of cash flows.
The Entity is required to present in the notes, information relating to the additional statement of profit or loss and other comprehensive income.
Change in Accounting Policy, Retrospective Restatement or Reclassification
A Company shall present a third comparative balance sheet in addition to two minimum statements for each statement as required by this standard. The third balance sheet will be presented if
- An Entity restates its Financial Statements retrospectively AND
- The effect of such restatements or reclassifications is material
In the above case, three balance sheets will be
- Statement as at period end
- Statement as at the end of the immediate comparative period
- Statement as at the start of the immediate comparative period
An Entity that is required to prepare a third statement of financial position is required to disclose certain information about the restatement. However, it is not required to present the related notes for the third statement of financial position (e.g., all notes are limited to one comparative only).
When an Entity reclassifies an amount or presentation is altered, it shall change the comparatives as well for the reclassification unless such reclassification is not practicable. A Company shall also show:
- The description of reclassification
- The amounts that were reclassified
- The reasons for the alteration or change
If it is not practicable for the reclassification of an item, a Company shall disclose:
- Reasons (i.e. an explanation of impracticability)
- A description of the adjustment that could result if such reclassification would have been practicable.
An example of presenting a third balance sheet:
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ABC Limited |
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Statement of Financial Position |
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As at 31 December 2020 (In AED) |
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2020 |
2019 |
January 1, |
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As restated |
2019 |
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(Note XX) |
As restated |
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(Note XX) |
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ASSETS |
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Non-current |
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Property and equipment |
XXX |
XXX |
XXX |
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Current assets |
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Inventories |
XXX |
XXX |
XXX |
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Trade and other receivables |
XXX |
XXX |
XXX |
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Receivables from related parties |
XXX |
XXX |
XXX |
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Cash and cash equivalents |
XXX |
XXX |
XXX |
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XXX |
XXX |
XXX |
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Total assets |
XXX |
XXX |
XXX |
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EQUITY AND |
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Equity |
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Share capital |
XXX |
XXX |
XXX |
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Other reserves |
XXX |
XXX |
XXX |
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Accumulated losses |
XXX |
XXX |
XXX |
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Total equity |
XXX |
XXX |
XXX |
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Liabilities |
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Non-current |
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Bank loans |
XXX |
XXX |
XXX |
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Payables to shareholders |
XXX |
XXX |
XXX |
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Provision for employee benefits |
XXX |
XXX |
XXX |
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XXX |
XXX |
XXX |
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Current |
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Bank loans |
XXX |
XXX |
XXX |
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Related party balances |
XXX |
XXX |
XXX |
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Trade and other payables |
XXX |
XXX |
XXX |
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Payables to related parties |
XXX |
XXX |
XXX |
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XXX |
XXX |
XXX |
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Total |
XXX |
XXX |
XXX |
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Total equity |
XXX |
XXX |
XXX |
Consistency in Disclosures, Classifications, and Presentations
The classification and presentation over the periods shall not be changed unless:
- It is clear that due to major operational changes of the Entity, it is more suitable to change a presentation or disclosure (alteration in classification and presentation will be made as per IAS 8); or
- New classification or presentation is required by an IFRS.
Such presentation will be changed only if it provides more relevant and reliable information to the users and the new presentation is expected to continue to apply in the coming periods to ensure comparability. The disclosures required for alteration in reclassification and presentation as discussed above in this standard continue to apply.
Identifiability of Financial Statements
If an Entity publishes its Financial Statements along with other information, it needs to clearly identify and distinguish its financial information from other published information such as director report.
Each statement presented and the related notes should be separately identifiable. The following shall be displayed prominently and be repeated where necessary to help users understand:
- Company’s name including any amendment in name from the prior period (e.g., in the case of change in name, the current and previous names will be disclosed)
- The fact that Financial Statements represent a single Company or if it’s a Group (i.e., Consolidated Financial Statements)
- The date/period of the Financial Statements
- The currency in which Financial Statements are presented
- Rounding level used for displaying amounts
This purpose can be achieved by putting appropriate headings on the pages of Financial Statements. Presenting numbers with rounding to billions etc. can be used so that material information is not omitted.
Balance Sheet
Following line items shall be shown in balance sheet:
- Fixed assets including Equipment and Furniture
- Investment Property
- Intangible Assets
- IFRS 9 assets
- Investments
- Biological Assets
- Inventories
- Trade receivables
- Cash and bank balances
- Assets Classified as Held for Sale (total) and those included in Disposal Groups presented as Held for Sale
- Trade and Other Payables
- Provisions
- Liabilities
- Current Tax Assets and Liabilities
- Tax Assets and Liabilities (Deferred)
- Liabilities under IFRS 5
- NCI
- Capital
- Reserves
Additional items may be presented if needed.
Sub Totals presented for additional line items shall:
- Comprise of amounts presented and measured as per IFRS
- Be clearly understandable
- Be consistent from period to period
- Not be displayed with more prominence than those subtotals required by IFRS in the statement of financial position.
Deferred tax assets are not presented as current assets and similarly, deferred tax liabilities are not presented as current liabilities (i.e., they will be shown as non-current in the balance sheet).
IAS 1 does not suggest a specific format or presentation of items in the statement of financial position. Separate line items represent items that are entirely different from one another.
Additional line items may be presented based on the nature and size and/or aggregation characteristics that make it relevant for Financial Statements to be understood properly.
The description and order of the items may also be amended depending on nature of operations. For example, financial institutions may use order of decreasing liquidity to present their Financial Statements i.e. showing cash and cash equivalents first followed by other liquid assets and most illiquid assets coming to the last position, for example, investment property and property plant and equipment.
Judgment needs to be exercised about disclosing different line items separately. An assessment in this regard includes:
- The assets’ nature and how liquid they are
- How assets perform activities for the Entity; and
- Nature of liabilities
Using different basis for the various class of items suggests that the two are different and should be shown separately. Accordingly, fixed assets under IAS 16 shown at cost will be a separate line item and those measured at revaluation will be shown as another separate line item.
Current and Non-current Classification
An Entity presents items of assets or liabilities either in current classification or a non-current classification in its balance sheet unless a liquidity-based disclosure or presentation is more relevant for the Entity e.g. for banks and other financial institutions. In such cases, assets are liabilities are not shown as current and non-current rather based on liquidity order.
In case, items are not shown as current or non-current on the statement of financial position, they will be disclosed as current and non-current in the notes.
Current assets and liabilities represent assets and liabilities whose expected settlement or recovery is less than or equal to one year after the date of the statement of the financial position.
Conversely, non-current liabilities and non-current assets represent liabilities and assets that have an expected recovery or settlement of more than one year from the date of the statement of financial position.
In some cases, a mix of current/non-current and a presentation based on liquidity may be useful for the users that provide more relevant and reliable information. In such cases, a mixed presentation can also be used in the statement of financial position.
If an Entity has a clear operating cycle of a definite period (for example one year), a presentation based on current/non-current assets and liabilities will be more reliable as it provides information about the expected working capital cycle, liquidity trends and suitable solvency analysis.
IFRS 7 also requires an Entity to show maturity analysis of its assets and liabilities.
Current Assets
Assets are treated as current
- When there is an expectation to realize within its normal operating cycle or to consume or sell it within the normal operating cycle
- When primary purpose of holding the asset is trading
- When there is an expectation for asset to be realized within 12 months from the date of the reporting period
- When it is a cash item under IAS 7 (unless there is a restriction on such asset for use or consumption for a period of minimum one year from the date of reporting)
Other assets which do not meet the definition of current assets are presented as non-current assets.
Other terms in place of “current and non-current” can also be used if they convey the same meaning.
The operations circle refers to the time period between when the asset is purchased and its realization into cash and cash equivalents. For example, if inventory and other current assets are converted into cash and cash equivalent within six months, then the operating cycle will be six months.
If the operating cycle of an Entity is not clear, it will be assumed as equal to one year.
Current assets (such as stock in trade and trade debtors) will be presented as current if they are recoverable within the normal operations cycle no matter even if such cycle results in recovering assets after more than 12 months.
Assets which are held for trading as primary objective are also current assets. For example, financial assets held for trade under IFRS 9.
The portion of long-term assets (non-current assets) that are expected to recover within the 12 months period will also be presented as current.
Liabilities
A liability is defined to be the current if
- Its expected settlement is a duration of one year or less
- Liability is held with the primary objective of selling it
- Liability is expected for payment / settlement within twelve months subsequent to the balance sheet date
- There does not exist a right to delay payment against this liability by more than 12 months subsequent to the period of financial statements. If a liability could be settled, through the possibility of other party to the agreement or through issuance of share capital, this will not affect the classification perspective of such liability.
Other liabilities that do not meet the definition of current liabilities shall be classified as “non-current”.
If the liabilities are due to be settled in its operating cycle, they will be presented as current even though such a cycle may exceed 12 months. For example, working capital liabilities i.e. trade payables and other accruals for operating costs.
If the normal operations cycle is not clearly identifiable, it will be treated as equal to one year.
Liabilities that do not follow settlements expected within the usual operations cycle are classified based on their expected maturity or primary purpose of holding. Liabilities with the purpose for selling under IFRS 9 will be presented as current even though they do not follow a normal operating cycle.
Similarly, dividend payables, bank overdrafts, income tax payables and the current part of non-current liabilities are presented as current based on their expected settlement in 1 year.
An Entity presents its financial liabilities as current in cases when they are expected for settlement within 12 months even though:
- Actual term of their settlement indicates a period of more than 12 months for the settlement of such liabilities, and
- There is an agreement for financial rearrangement or rescheduling occurring subsequent to the balance sheet date and before the FS are authorized for issue resulting in reclassification of such liabilities into non-current.
If it is expected by an Entity to settle a loan liability after twelve months AND also it has the choice to defer the settlement beyond 12 months, it will classify such liability as non-current, no matter, even if it is otherwise due within 12 months.
In case of a breach of a contract for a non-current loan by an Entity resulting in such loan becoming payable upon request by lender, then such loan will be presented as current, no matter, even if the lender has agreed not to demand payment within 12 months (such agreement taking place after the period end of Financial Statements but before the date of authorization of Financial Statements).
However, if it is agreed by the lender:
- to grant a grace period of at least 12 months subsequent to the end of the date of Financial Statements to take corrective actions to nullify the breach and
- within this grace period, the party lending the loan cannot request payment against the liability, then it will be classified as a non-current liability.
For those loans that are classified as a current liability, the events occurring between the date of the Financial Statements and the date of authorization of Financial Statements shall be shown in a disclosure as non-adjusting:
- Rearranging the terms of loan on a long-term basis
- Actions taken to correct the impact of a breach of non-current loan
- Grant of a grace period by the lender to take necessary actions to correct the impact of breach for a non-current loan ending one year (minimum) after the date of the Financial Statements.
Presentation and Disclosures either in the Balance Sheet or in the Attached Notes
A Company will present sub-classification of items in balance sheet or in the relevant notes, in an appropriate way based on its activities.
The details of sub-classification may be required by other IFRSs. For example, IFRS 16 requires the movement and breakdown of fixed assets to be disclosed.
Other sub-classification includes:
- Disaggregation of receivables into intercompany receivables, trade receivables, prepaid balances, advances etc.
- Inventories are classified further into merchandise, in process work, finished goods, raw materials etc.
- Provisions are disaggregated into human resource benefits, IAS 37 provisions and others.
- Equity is classified into paid-up share capital, premium, retained earnings and other reserves.
IAS 1 requires disclosing the following items either in the balance sheet, equity statement or in relevant notes:
- For equity capital (separately for each kind of equity capital) (there may be various classes of share capital e.g., ordinary shares, preference shares etc.)
- Quantity of shares authorized
- Quantity of issued shares and the quantity of fully paid shares, and the quantity of shares for which no amount has been paid although duly issued
- For each share, its face value (or disclose the fact that shares do not have a value, if applicable)
- Quantity of shares at the start of the period is reconciled with the number at the closing of the Financial Statements period
- Characteristics including rights and obligations etc. attached to each class of share capital including limitations on dividends and repayment of capital
- Quantity and description of shares held by associates, joint ventures or subsidiaries
- Options to purchase shares held by other parties and other such arrangements and amounts of such options and arrangements.
- For different reserves recorded in equity, their nature will be described along with their purpose.
An Entity that does not have share capital (e.g., a partnership) need to show similar information as shown above to show the movement and changes in its equity and the description and restrictions if any, on such equity.
Example of a Sample Statement of Financial Position Prepared as per IAS 1:
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Defferred |
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Statement of Profit or Loss and Other Comprehensive Income
The Statement of Profit or Loss and Other Comprehensive Income shall include in addition to two separate sections for Profit or Loss and Other Comprehensive Income:
- Profit or Loss
- Total Other Comprehensive Income
- Comprehensive income for the period (i.e., a total of P&L and OCI for the period)
If an Entity presents a separate statement of P&L, it will not show the profit or loss section in the Comprehensive Income Section.
Following disclosures will be made to show the allocation of profit and other comprehensive income between owners of the Company and Non-controlling interests:
- Profit or loss attributable to:
- Owners of the Parent Company
- Non-Controlling Interests
- Comprehensive income attributable to:
- Owners of the Parent Company
- Non-Controlling Interests
Part a) disclosed above will be shown at the end of Statement of Profit or Loss if a separate Statement of Profit or Loss is presented. However, if a combined single Statement of Profit or Loss and Other Comprehensive Income is shown, then both disclosures shown above (a and b) will be presented at the end of such statement.
Information to be Shown in Profit or Loss Section or the Profit or Loss
Following line items (in addition to those required by other standards) shall be shown in the Profit or Loss (in case of separate statement) or in the “Profit or Loss” Section within the single Statement of P&L and OCI:
- Revenues (interest income recognized using effective interest method will be shown separately)
- Gains and losses arising from the derecognition of financial assets measured at amortized cost
- Finance costs
- Impairment losses (including reversal of impairment gains) on financial assets recorded as per IFRS 9
- Profit and loss allocation from associates etc. accounted under the equity method
- In case of a reclassification of a financial asset previously recognized at amortized cost to “fair value through profit or loss” on such reclassification will be recognized as a separate line item in profit or loss
- In case of a reclassification of a financial asset from “fair value through other comprehensive income” category to “fair value through profit or loss” category, any gain or loss previously recognized in other comprehensive income for such asset will be reclassified to Statement of Profit or Loss
- Tax expense
- A single amount representing the total income or loss of discontinued operations.
Presentation of information in the ‘OCI’ Section
The ‘OCI’ section shall include line items categorized within two main parts:
- Items that will not be reclassified subsequently to profit or loss
- Items that will be reclassified subsequently to profit or loss (upon specific conditions to be met)
The share of OCI of associates and joint ventures accounted for using the equity method, shall also be presented within the above two sections a and b.
An Entity may present further disaggregation into separate items, headings etc. in statement of profit or loss and other comprehensive income when they are considered useful to assess the performance of an Entity.
Sub Totals presented for further bifurcated items shall:
- Comprise of amounts presented and measured as per IFRS
- Be clearly understandable
- Be consistent from period to period
- Not be displayed with more prominence than those subtotals required by IFRS in the statement of profit or loss and other comprehensive income.
A company will not include one or more items of profit or loss for being extraordinary.
P&L of a Period
A Company will include all items of profit and expenses in the P&L except when another IFRS suggests an item to be recorded in other comprehensive income.
In addition, IAS 8 requires presenting the impact of a restatement (change in accounting policy or rectification of a misstatement) to be shown directly in the statement of changes in equity for prior period effects.
OCI of a Period
A disclosure will be made for the impact of taxes on income on all transactions recorded in ‘Other comprehensive Income’ in the “Statement of Profit or Loss and OCI” or notes to such financials.
Such tax effects can be shown by one of the two below methods:
- All items are shown net of tax (i.e., the amount of tax is not shown separately); or
- All items are shown gross in the ‘Other Comprehensive Income’ and a single line item showing tax impacts for all such items is shown
If part (b) is chosen, then the Entity needs to allocate the tax effect separately for items that will be reclassified subsequently to profit or loss and those items that will not be reclassified subsequently to profit or loss.
A disclosure will be made for adjustments relating to reclassifications from OCI to P&L.
Reclassification adjustments arise when items recorded in OCI are classified to P&L, for example, foreign exchange gains or losses are recognized in other OCI against a foreign operation. On disposal of a foreign operation, these gains or losses are transferred to P&L.
Reclassification adjustments are permitted only in some cases. Other items recognized in other comprehensive income are not allowed to be reclassified subsequently into profit or loss. For example, revaluation surplus arising on fixed assets is recognized directly in OCI and is not reclassified subsequently to P&L. Such reserves may be shifted directly into retained earnings when the related assets are disposed. The same is the case with the remeasurement of employee benefits under IAS 19 standard.
Presentation of Information in Profit or Loss and Other Comprehensive Income
In case profit, and expense items are material, they will be shown and disclosed separately.
In the following situation, the separate disclosures will be required:
- NRV write-down of inventories
- Impairment of property and equipment and other fixed assets
- Provisions for restructuring and any reversals made for such provisions
- Sales of property and equipment
- Disposal of investments
- Discontinued operations
- Litigations and their settlements
- Other provisions and their reversals
A company will show expense either by nature or function depending upon which method provides more relevant and reliable information. Entities are encouraged to present this analysis in Profit or Loss and Other Comprehensive Income.
Expenses by nature include depreciation, purchase expense of materials, employees’ expense etc. In this form of presentation, they are not allocated to various functions.
Example of Showing “Expenses by Nature”:
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Expenses by Nature |
2020 |
2019 |
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Cost of sales of finished products |
XXX |
XXX |
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Costs of handling customers |
XXX |
XXX |
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Salary expenses |
XXX |
XXX |
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Repairs and maintenance expense |
XXX |
XXX |
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Depreciation and amortization expense |
XXX |
XXX |
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Rent expense |
XXX |
XXX |
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Travel and transportation |
XXX |
XXX |
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Professional fees |
XXX |
XXX |
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Communication |
XXX |
XXX |
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Printing and stationery |
XXX |
XXX |
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Insurance cost |
XXX |
XXX |
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Advertising cost |
XXX |
XXX |
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Provision for impairment of trade receivables |
XXX |
XXX |
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Profit on sale of property plant and equipment |
XXX |
XXX |
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Provision for impairment of trade receivables reversed |
XXX |
XXX |
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Other expenses |
XXX |
XXX |
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XXX |
XXX |
“Expense by Function” Analysis:
By this method, expenses are shown based on function e.g., cost of goods or services, general and admin expenses, distribution and marketing expenses. A single expense might need to be allocated to one or more functions e.g., depreciation of building may be allocated to both cost of sales and general and admin expenses based on the usage of this building.
A Statement of Profit or Loss under this method:
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2020 |
2019 |
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Revenue |
XXX |
XXX |
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Cost of sales |
XXX |
XXX |
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Gross profit |
XXX |
XXX |
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Other income |
XXX |
XXX |
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Distribution costs |
XXX |
XXX |
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General and Administrative expenses |
XXX |
XXX |
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Other expenses |
XXX |
XXX |
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Profit before tax |
XXX |
XXX |
At least, the Entity needs to show its cost of goods or services differently from other costs under this method. Additional information will also need to be disclosed for the nature of items shown by the function including depreciation, amortization and employees’ benefits expense.
Example of a Statement of Profit or Loss and Other Comprehensive Income under IAS 1:
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ABC Limited |
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Statement of Profit or Loss and Other Comprehensive Income |
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For the year ended 31 |
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2020 |
2019 |
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Revenue |
XX |
XX |
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Cost of goods /services |
(XX) |
(XX) |
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Gross profit |
XX |
(XX) |
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Other income |
XX |
XX |
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Distribution and marketing expenses |
(XX) |
(XX) |
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Administrative and general expenses |
(XX) |
(XX) |
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Other expenses |
(XX) |
(XX) |
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Interest costs |
(XX) |
(XX) |
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Gain on derecognition of financial assets at amortized cost |
(XX) |
(XX) |
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Provision for expected credit losses of financial assets |
(XX) |
(XX) |
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Gain on reclassification of financial asset to ‘Fair Value |
(XX) |
(XX) |
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Share of profit/(loss) of associates and joint ventures |
XX |
XX |
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Profit/(loss) before |
XX |
XX |
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Income tax expense/(credit) |
(XX) |
(XX) |
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Profit for the period |
XX |
XX |
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Loss for the period from discontinued operations |
(XX) |
(XX) |
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PROFIT/(LOSS) FOR THE |
XX |
XX |
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Other |
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Items that will not be reclassified to profit or loss: |
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Gains on revaluation of property and equipment |
XXX |
XXX |
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Remeasurements of defined benefit pension plans |
(XXX) |
(XXX) |
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Equity investments at FVOCI – net change in fair value |
XXX |
XXX |
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Equity-accounted investees – share of OCI |
XXX |
XXX |
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Share of other comprehensive income of associates |
XXX |
XXX |
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Income tax relating to items that will not be reclassified |
(XXX) |
(XXX) |
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XXX |
XXX |
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Items that may be reclassified subsequently to profit or loss: |
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Exchange differences on translation of foreign operations |
XXX |
XXX |
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The effective portion of cash flow hedges |
XXX |
XXX |
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Income tax effects of exchange differences on translation of |
(XXX) |
(XXX) |
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XXX |
XXX |
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Other comprehensive income for the period, net of tax |
XXX |
XXX |
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TOTAL COMPREHENSIVE |
XXX |
XXX |
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Profit attributable to: |
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Owners of the parent |
XXX |
XXX |
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Non-controlling interests |
XXX |
XXX |
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XXX |
XXX |
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Total comprehensive income attributable to: |
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Owners of the parent |
XXX |
XXX |
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Non-controlling interests |
XXX |
XXX |
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XXX |
XXX |
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Earnings per share (in currency units): |
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Basic |
XXX |
XXX |
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Diluted |
XXX |
XXX |
Note: In this statement, expenses are shown by function.
Presentation of Equity Related Activities
Presentation of Equity Statement (SCE)
The following information will be shown in the SCE:
- A movement from opening to the closing balance of all items of equity (share capital, share premium, retained earnings, other reserves, and non-controlling interests)
- In the movement, profit/loss for the year will be shown as a line item (allocation to owners of the parent and the non-controlling interests)
- Other comprehensive income will also be shown separately in the movement (allocation to parent shareholders and the non-controlling interests)
- Transaction with owners e.g. dividends and contributions to equity are shown as separate line items
- Effect of retrospective restatements in line with the requirements of IAS 8
Information to be Presented in the Statement of Changes in Equity or in the Notes
The following information shall be presented in the SCE itself or in the Notes:
- The breakdown of OCI by items (i.e., which comprehensive income item is classified to which component of equity e.g., translation gain on foreign operations may go to translation reserves)
- Amount of dividends recognized and amount of dividend per share
An Example of a Statement of Changes in Equity as per IFRS:
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ABC Limited |
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Statement of Changes in Equity |
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For |
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Share |
Legal |
Fair |
Foreign |
Retained |
Total |
Non-controlling |
Total |
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Balance at 1 January 2020 |
XXX |
XXX |
XXX |
XXX |
XXX |
XXX |
XXX |
XXX |
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Net profit for the year |
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XXX |
XXX |
XXX |
XXX |
|
Other comprehensive income for the Year |
– |
– |
– |
– |
XXX |
XXX |
XXX |
XXX |
|
Total comprehensive income for the year |
– |
– |
– |
– |
XXX |
XXX |
XXX |
XXX |
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Issuance of share capital |
XXX |
– |
– |
– |
– |
XXX |
– |
XXX |
|
Transfers of reserves on disposal of FVOCI |
– |
– |
(XXX) |
– |
XXX |
XXX |
– |
XXX |
|
Dividends |
– |
– |
XXX |
– |
(XXX) |
– |
(XXX) |
(XXX) |
|
Balance |
XXX |
XXX |
XXX |
XXX |
XXX |
XXX |
XXX |
XXX |
There is a separate standard (IAS 7) that provides detailed analysis for preparation of cash related activities of a company. In notes, a Company will: Notes will be presented in a systematic manner and notes will be cross-referred to line items in the Statement of Financial Position, Profit or Loss and Other Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows. Examples of systematic ordering and grouping of notes include: A Company shall disclose its significant accounting policies comprising: When more than one measurement base is used for different classes of similar items, it will be indicated in a sufficient manner to enable users to identify the measurement basis for each class. In deciding whether a particular policy should be disclosed, management needs to assess whether the policy helps users to understand the nature of transactions, how they have been measured and information about other events or conditions. Standards sometimes allow policy choices for the measurement of certain items. For example, IAS 16 allows fixed assets to be measured either at cost or fair value. As part of policy disclosure, management will disclose which alternative has been used in the measurement of specific items. An accounting policy can be material based on the nature of operations of an Entity even though related amounts are not material for current and prior periods. It is also appropriate to disclose each significant accounting policy not required by IFRS but used by the Entity as per IAS 8. A Company shall also disclose the significant judgments made in applying the accounting policies and that have most significant impact on items measured as per these policies. A Company shall disclose information about the assumptions it makes about the future especially those involving estimation uncertainty that could have a material impact on the recorded amounts when the uncertainty is removed in the next periods. In respect of assets and liabilities, the notes shall include details of: Examples of disclosures to be made for estimation uncertainty include: A Company shall disclose information that enables users of its Financial Statements to evaluate the Entity’s objectives, policies, and processes for managing capital including disclosures about: Whether during the period the Entity complied with externally imposed capital requirements, and if there is such a non-compliance, the consequences of such non-compliance will be disclosed. A Company shall disclose the following, if not disclosed elsewhere:Notes to the Financial Statements
Disclosure of Accounting Policies
Sources of Estimation Uncertainty
Capital
Other Disclosures
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