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LEARNING OBJECTIVES 3
International Financial Reporting Standards

After studying this topic, students should be able to:

- Describe a complete set of financial statements

Topic 7:
- Identify general features of financial statements
IAS 1 - Presentation of
- Understand following components of financial
Financial Statements statements:
• Statement of financial position (balance sheet)
• Statement of comprehensive income
• Statement of change in equity
• Note to the financial statements

IAS 1 – Presentation of
Financial Statements 2 Objective of financial reporting 4

• Provide financial information about the reporting entity

• Mandatory Readings that is useful to existing and potential investors, lenders
– KTQT2: Chapter 10 and other creditors in making decisions about providing
– IFRS Practical Guide: Chapter 3 resources to the entity.
• Recommended Readings – The information provided about financial
– IASB (2012), IAS 1 – Presentation of Financial performance helps existing and potential investors,
Statements lenders and other creditors to understand the return
the entity has produced on its economic resources.

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General features of financial

Objective of financial reporting 5 statements 7

To meet that objective, financial statements provide

information about an entity's: • Fair presentation
 assets – achieved through application of IFRS
 liabilities
– disclose compliance with IFRS
 equity
– full compliance with IFRS required
– application before effective date
 income and expenses, including gains and losses
– disclose that fact
 contributions by and distributions to owners (in their
– true and fair override
capacity as owners)
– only in extremely rare circumstances
 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 General features of financial

statements 6 statements 8

A complete set of financial statements includes: • Fair presentation

– a statement of financial position (balance sheet) at the
– In extremely rare circumstances, where compliance
end of the period
with a Standard would be misleading so it would
– a statement of comprehensive income (profit or loss and
other comprehensive income) for the period conflict with objective set out in the framework
– a statement of changes in equity for the period – departure is permissible, if regulatory framework
– a statement of cash flows for the period requires or does not prohibit
– notes, comprising a summary of significant accounting – Specified disclosure required
policies and other explanatory notes
– comparative information prescribed by the standard.

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General features of financial Structure and content of

statements 9 financial statements 11

• Going concern • Identify what is included

– no intention to liquidate or to cease trading =>
accrual basis of accounting • Must display the following
– Disclose in case of Material uncertainty 1. the name of the entity
– If not going concern, use new basis of accounting
2. whether the financial statements are consolidated
• Accrual basis - transactions and events or not
– are recognised when they occur, and 3. the date of the balance sheet or period covered
– in the periods to which they relate
4. the reporting currency and
• Consistency 5. the level of rounding (e.g. $000s)
– presentation & classification be retained
– Unless change in nature of operations necessitates
another presentation
– A standard or an interpretation requires a change

General features of financial

statements 10 Statement of financial position 12

• Materiality & aggregation Usefulness

– material  present separately
– immaterial  aggregate with other items  Computing rates of return.
• Offsetting  Evaluating the capital structure.
– Assets/Liabilities, and Income and expenses shall not be
offset unless required or permitted  Assess risk and future cash flows.
• Comparative information  Assess the company’s:
– incl. narrative & descriptive information
– At least two statements and a third if retrospective ► Liquidity,
application or restatement
• Frequency of reporting ► Solvency, and
– At least annually
– To explain if longer or shorter ► Financial flexibility.

LO 1

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Statement of financial position 13 Statement of financial position 15

Elements of the Statement of Financial Position Elements of the Statement of Financial Position

ASSET LIABILITY EQUITY ASSET LIABILITY EQUITY

 Resource controlled by the entity.  Residual interest in the assets of the entity after
 Result of past events. deducting all its liabilities.
 Future economic benefits are expected to flow to the
entity.

Statement of financial position 14

CLASSIFICATION IN THE STATEMENT16

Elements of the Statement of Financial Position Subclassifications

ASSET LIABILITY EQUITY

 Present obligation of the entity.

 Arising from past events.
 Settlement is expected to result in an outflow of
resources embodying economic benefits.

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Statement of financial position 17 Statement of financial position 19

• current vs. non-current distinction • Current Vs. non Current Liabilities

• or, classify based on liquidity if more – Settled in the normal course of operating
cycle or due to be settled within 12 month of
relevant
the balance sheet date
• obligatory line items on face of B/S – Held primarily for the purpose of being
• disclosure required on face or in notes traded
– No unconditional right to defer settlement for
–relevant sub-classifications of items
at least 12 months
above – post-balance sheet events (refinancing,
–information on share capital and correction of defaults) do not affect current
reserves vs. non-current classification
– All other Liabilities are non-Current

Statement of financial position 18 Statement of financial position 20

As a minimum, the statement of financial position shall

• Current vs. non-current Assets include line items that present the following amounts:
–Realised/settled in the normal course • (a) property, plant and equipment;
of operating cycle or within 12 month • (b) investment property;
of the balance sheet date • (c) intangible assets;
–Held primarily for the purpose of being • (d) financial assets (excluding amounts shown under (e), (h) and (i));
traded • (e) investments accounted for using the equity method;
–Unrestricted cash or a cash equivalent • (f) biological assets;
–All other assets are non-Current • (g) inventories;
• (h) trade and other receivables;
• (i) cash and cash equivalents;

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Statement of financial position

Statement of financial position 21 Current assets 23

• (j) the total of assets classified as held for sale and assets included in
disposal groups classified as held for sale in accordance with IFRS 5
• (k) trade and other payables;
• (l) provisions;
• (m) financial liabilities (excluding amounts shown under (k) and (l));
• (n) liabilities and assets for current tax, as defined in IAS 12
• (o) deferred tax liabilities and deferred tax assets, as defined in IAS 12
• (p) liabilities included in disposal groups classified as held for sale in
accordance with IFRS 5
• (q) non-controlling interests, presented within equity; and
• (r) issued capital and reserves attributable to owners of the parent.

Statement of financial position Statement of financial position

Non-current assets 22 Non-current and current liabilities 24

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Statement of financial position Statement of comprehensive income

Equity 25 Usefulness 27

Evaluate past performance.

Predicting future performance.

Help assess the risk or uncertainty

of achieving future cash flows.

Statement of comprehensive income

Statement of comprehensive income 26 Concepts 28

• Usefulness
Comprehensive = Profit + Other
• Concepts income or loss comprehensive
• Choice in presentation and basic for the period income
requirements
• Profit or loss The change in equity
during a period resulting
• Other comprehensive income from transactions and
• Other requirements other events, other than
those changes resulting
from transactions with
owners in their capacity
as owners

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Statement of comprehensive income Other comprehensive income -

Concepts 29 Examples 31

• Changes in revaluation surplus where the revaluation method is used under IAS 16
Property, Plant and Equipment and IAS 38 Intangible Assets
Comprehensive = Profit + Other
• Exchange differences from translating functional currencies into presentation
income or loss comprehensive currency in accordance with IAS 21 The Effects of Changes in Foreign Exchange
for the period income 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
The total of income less
• Gains and losses on remeasuring an investment in equity instruments where the
expenses, excluding the entity has elected to present them in other comprehensive income in accordance
components of other with IFRS 9
comprehensive income". • The effects of changes in the credit risk of a financial liability designated as at fair
value through profit and loss under IFRS 9.
• Remeasurements of a net defined benefit liability or asset recognised in accordance
with IAS 19 Employee Benefits (2011)

Statement of comprehensive income Statement of comprehensive income

Concepts 30 Choice in presentation and basic requirements 32

• An entity has a choice of presenting:

Comprehensive = Profit + Other – a single statement of profit or loss and other
income or loss comprehensive
comprehensive income, with profit or loss and other
for the period income
comprehensive income presented in two sections,
or
– two statements:
Items of income and  a separate statement of profit or loss
expense (including  a statement of comprehensive
reclassification income, immediately following the statement of
adjustments) that are not profit or loss and beginning with profit or loss
recognised in profit or
loss as required or
permitted by other IFRSs

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Statement of comprehensive income Statement of comprehensive income

Choice in presentation and basic requirements 33 Choice in presentation and basic requirements 35

One Statement Approach • The statement(s) must present:

– profit or loss
– other comprehensive income
– total 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.

Statement of comprehensive income Statement of comprehensive income

Choice in presentation and basic requirements 34 Profit or loss 36

Two • The following minimum line items must be

Statement
presented:
Approach
– revenue
– gains and losses from the derecognition of financial
assets measured at amortised 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

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Statement of comprehensive income Statement of comprehensive income

Profit or loss 37 Profit or loss 39

Nature-of-Expense Approach

Statement of comprehensive income Statement of comprehensive income

Profit or loss 38 Profit or loss 40

Function-of-Expense Approach
• 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). Additional information on the nature of
expenses must be provided.

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Statement of comprehensive income

Other comprehensive income 41 Statement of change in equity 43

• The other comprehensive income section is • Separate component of financial statements

required to present line items which are classified • On the face
by their nature, and grouped between those items – (a) Profit or loss for the period
that will or will not be reclassified to profit and loss – (b) gains and losses not reflected in income
statement
in subsequent periods. – (a)+(b) attributable to each of Minority Interest and
equity holders of the parent
• also in statement or in the notes
– capital transactions with owners
– movements in accumulated profit
– movements in capital and reserves

Statement of comprehensive income

Other requirements 42 Statement of change in equity 44

• Additional line items may be needed to fairly

present the entity's results of operations
• Items cannot be presented as 'extraordinary items'
in the financial statements or in the notes
• Certain items must be disclosed separately either in
the statement of comprehensive income or in the
notes, if material

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Statement of cash flows 45

Notes to the Financial Statements
ILLUSTRATION
• Comply with IAS 7 (will be covered in the next Accounting Policies—
Inventory

topic).

ILLUSTRATION
Accounting Policies—
Intangible Asset

Notes to the financial statements 46

Notes to the Financial Statements

• basis of preparation of financial statements Additional Notes to the Financial Statements

• accounting policies selected IFRS requires specific disclosures. Examples include:
• additional disclosure to present fairly
1. Items of property, plant, and equipment are disaggregated
• other sundry disclosures into classes such as
– e.g. domicile, legal form, country of incorporation
 land,

 buildings, etc.,

 in the notes, with related accumulated depreciation

reported where applicable.

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Additional Notes
ILLUSTRATION
Reconciliation Schedule for
Property, Plant, and Equipment

The end! 50

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